UBS

Swiss bank UBS will pay $1.5 billionfor their role in the Libor rate-rigging scandal. The sum is over three times the fine imposed on Barclays Bank for the same violations. UBS also admitted to one count of wire fraud in its Japanese unit, according to the Justice Department. Much of the rate rigging in the complaint comes out of that Japanese unit.

The settlement caps a tough year for Switzerland’s biggest bank, which is one of several leading banks that has been under investigation over allegations of manipulating the benchmark LIBOR interest rate, short for London interbank offered rate. It is used to set the interest rates on trillions of dollars in contracts around the world, including mortgages and credit cards [...]

The statement from the UBS board of directors said some of its personnel had “engaged in efforts to manipulate submissions for certain benchmark rates to benefit trading positions.”

The bank also said that some of its employees had “colluded with employees at other banks and cash brokers to influence certain benchmark rates to benefit their trading positions” or had given “inappropriate directions to UBS submitters that were in part motivated by a desire to avoid unfair and negative market and media perceptions during the financial crisis.”

Felix Salmon got a hold of the British Financial Services Authority report on UBS’ crimes, and he is uncharacteristically shocked by it. Most of the report focuses on the rate-rigging to benefit trading positions, rather than the later rate-rigging to mask the financial health of the bank. And the traders were increasingly brazen in asking for, and receiving, changes to the Libor.

UBS’s misconduct is, although similar in nature, considerably more serious than Barclays’ because it was more widespread within the firm, being exacerbated by the control failings, in particular the inherent conflict of interest in its submission function. More individuals, including Managers and Senior Managers, participated in or knew about the manipulation and there were more instances of individual manipulation, across more currencies. Furthermore, the extent to which UBS colluded with others was significantly greater and involved financial rewards being paid to Broker Firms.

The latter point is key: UBS didn’t just manipulate its own submissions, but actively attempted to manipulate other firms’ submissions as well. And at points the bribery was so explicit as to beggar belief that anybody would ever communicate such things on the record:

“If you keep 6s [i.e. the six month JPY LIBOR rate] unchanged today … I will fucking do one humongous deal with you … Like a 50,000 buck deal, whatever … I need you to keep it as low as possible … if you do that …. I’ll pay you, you know, 50,000 dollars, 100,000 dollars… whatever you want.”

As Felix notes, “50,000 buck deal” stands for $50 billion. The broker would make $50,000 personally off it. Dealbook has more of the choice email quotes.

So this reflects outright bribery in exchange for favorable Libor rates. And I hope it puts the idea to rest that “rogue traders” roamed the halls at UBS and these other banks. Clearly the policy was to maximize profits, and at the very least that led to lax institutional controls, if not outright demands to make money by any means necessary.

Once again, this is a settlement, with one admission of fraud thrown in for good measure. But no executives are going to jail, and indeed nobody has yet stepped down at UBS as a result. One former trader, Thomas Hayes, could see jail time, but that’s probably as far as it goes. Civil suits could proliferate down the line, and the fraud count helps with that. But this really shows that the whole of the banking industry is staffed by corrupt traders and more corrupt managers, in that they demand no accountability and refuse to control the activities of their firms. They hope that by trickling out the penalties they can absorb them, to make it the cost of doing a profitable business based in ripping off clients, investors, and basically anyone with a dollar in their hands.

By the way, the Financial Times points out today that Tim Geithner, while heading the NY Fed, knew all about the Libor fraud at the major banks, and that traders were manipulating the rate purely to make money for themselves on various deals. This is a stronger charge than the idea that banks manipulated the rate for reasons of financial health, and Geithner knew it was happening. But he did nothing. As per usual.

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