UBS to pay $1.5 billion in rate-rigging scandal

Assistant Attorney General of the Criminal Division Lanny A. Breuer speaks at a news conference Wednesday at the Department of Justice in Washington as Attorney General Eric Holder listens. The Justice officials were announcing that the international investment bank UBS Securities Japan Co. Ltd. will pay more than $1.5 billion in penalties in three nations to resolve charges of trying to manipulate an interest rate used as a benchmark in global banking transactions.
Assistant Attorney General of the Criminal Division Lanny A. Breuer speaks at a news conference Wednesday at the Department of Justice in Washington as Attorney General Eric Holder listens. The Justice officials were announcing that the international investment bank UBS Securities Japan Co. Ltd. will pay more than $1.5 billion in penalties in three nations to resolve charges of trying to manipulate an interest rate used as a benchmark in global banking transactions. Jose Luis Magana/AP Photo

Geneva - Swiss bank UBS agreed Wednesday to pay $1.5 billion in fines for trying to manipulate a key interest rate that affects borrowers around the world.

The settlement with U.S., British and Swiss regulators caps a tough year for the company and the reputation of the global banking industry. The fine on UBS, which will also see two former traders charged with conspiracy, is triple the amount that British bank Barclays PLC agreed to pay in June to settle similar charges.

And it comes a week after HSBC agreed to pay nearly $2 billion to settle allegations of laundering money for Mexican drug cartels and countries under U.S. embargoes, such as Iran.

UBS, Switzerland's largest bank, said some of its employees tried to rig the LIBOR rate - short for London Interbank Offered Rate - in several currencies. The rate is set daily using information that banks provide and is used to price trillions of dollars in contracts around the world, including mortgages and credit cards.

Some UBS traders voluntarily submitted - or pressured others to submit - inaccurate data to gain some financial advantage.

The bank's Japan unit, where much of the manipulation took place, entered a plea to one count of wire fraud in an agreement with the U.S. Justice Department.

The Justice Department said two former UBS senior traders, Tom Alexander William Hayes, 33, of Britain, and Roger Darin, 41, of Switzerland, will be charged with conspiracy, while Hayes also will be charged with wire fraud in New York federal court. Justice Department officials said they believed the two men were in Britain and Switzerland, and would be seeking their extradition.

UBS will pay $1.2 billion of its fine to the Justice Department and U.S. Commodity Futures Trading Commission. The CFTC will get $700 million, the largest fine it ever ordered. The remaining $300 million will go to regulators in Britain and Switzerland.

As a result of the fines, litigation, unwinding of real estate investments, restructuring and other costs, UBS said it expects to lose between 2 billion and 2.5 billion Swiss francs ($2.2 billion to $2.7 billion) in the fourth quarter. Nevertheless, the Zurich-based bank maintained that it "remains one of the best capitalized banks in the world."

UBS shares closed down 0.3 percent at 15.20 francs on the Zurich exchange.

The LIBOR scandal is likely to make headlines again in coming months. Other big global banks are also being investigated for rigging the same market and are expected to be fined.

UBS said some of its personnel had "engaged in efforts to manipulate submissions for certain benchmark rates to benefit trading positions" and that some employees had "colluded with employees at other banks and cash brokers to influence certain benchmark rates to benefit their trading positions."

Britain's financial regulator called the misconduct by UBS "extensive and broad," with the rate-fixing carried out from UBS offices in London and Zurich.

Different desks were responsible for different rate submissions. At least 2,000 requests for inappropriate submissions were documented. An unquantifiable number of oral requests were also made, the U.K.'s Financial Services Authority said.

"Manipulation was also discussed in internal open chat forums and group emails, and was widely known," the FSA said. "At least 45 individuals including traders, managers and senior managers were involved in, or aware of, the practice of attempting to influence submissions."

Joe Rundle, head of trading at London-based ETX Capital, said the case exposes "just how brazen and arrogant" the UBS traders were while collaborating with "corrupt external brokers."

 

At a glance

The punishment: Swiss bank UBS will pay $1.5 billion in a settlement with U.S., British and Swiss regulators for trying to rig a key interest rate. Two traders have also been charged with conspiracy, and the bank's Japan unit will plead guilty to felony wire fraud in the U.S.

The rate: The rate in question, the London Interbank Offered Rate, or LIBOR, is used to price trillions of dollars in contracts worldwide, including mortgages and credit cards.

The scandal: Other big global banks are also being investigated for rigging the same market. Britain's Barclays settled with regulators in June.

- The Associated Press

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