UBS agrees to pay $1.5 b for manipulating Libor

Swiss banking giant UBS said today it had agreed to pay about $1.5 billion to British, US and Swiss regulators to settle allegations it manipulated Libor interest rates.

The bank said the settlement, equivalent to 1.2 billion euros, would likely push it into a net loss of between $2.2-2.7 billion, in the fourth quarter.

The Libor rate is a reference point for vast ranges of financial contracts around the world, and revelations that it had been rigged have damaged the reputation of the City of London financial centre.

“UBS agrees to pay approximately CHF 1.4 billion in fines and disgorgement to US, UK and Swiss authorities to resolve LIBOR-related investigations,” the statement said.

The bank, the biggest in Switzerland, will pay three times the amount of the settlement reached in June with Britain’s Barclays, another one of the more than dozen banks investigated for trying to rig global interest rates.

As part of one of the biggest fines ever slapped on a financial institution, the Swiss bank said it had agreed to pay $260 million in fines to the UK Financial Services Authority.

It will pay $64 million as disgorgement, or compensatory penalty, of estimated profits to the Swiss Financial Market Supervisory Authority (FINMA).

It also said it had agreed to payment schedules for a total of $1.2 billion to the US Department of Justice and the Commodity Futures Trading Commission (CFTC).

UBS was the first bank to reveal problems in the rate-setting process of the Libor, an acronym for London Interbank Offered Rate, which estimates the rates at which banks lend money to each other and also affects huge numbers of contracts around the world.

Other banks are also reportedly in advanced talks with regulators about settling allegations that they too manipulated their Libor information, including Royal Bank of Scotland and Deutsche Bank.

'Superman', 'Hero'

In their manipulation of Libor, traders and brokers of UBS referred to each other as ‘Superman’, ‘Hero’ and ‘Captain Chaos’, a joint probe by the British and Swiss regulators found today.

The two authorities said the probe revealed that the individuals involved in the manipulative activities of the reference rate “referred to each other in congratulatory and exhortatory terms such as ‘the three muscateers (sic)’, ’Superman’, ‘Be a Hero today’ and ‘Captain Caos’ (sic)“.

These are part of documented electronic communications between traders and brokers involved in the case.

FINMA said the traders working at UBS made numerous requests to bank employees to submit interest rates of higher or lower values so as to benefit UBS proprietary trades.

Libor and the Euro Interbank Offered Rate (EURIBOR) are benchmark reference rates used in both the UK and international financial markets.

FSA said that some managers and employees of UBS sought to manipulate certain Libor currencies and Euribor between 2005 and 2010, by way of wrong submission of rates that formed part of the calculation of Libor and Euribor.

Illicit fees

Various traders offered illicit fees to the brokers for their cooperation in the rate manipulation, while UBS also made additional payments of 15,000 British pounds per quarter as a reward for the provision of a “fixing service” for a period of at least 18 months, FSA said.

“A number of UBS managers knew about it and in some cases were actively involved in UBS’ attempts to manipulate rates.

In total, improper requests directly involved approximately 40 individuals at UBS, 11 of whom were Managers.

“At least two further Managers and five Senior Managers were also aware of the practice of the manipulation of submissions to benefit trading positions,” FSA said.

In one conversation, a trader made certain requests to a broker, calling him to “be a hero today” and be a ‘Superman’.

The broker replied by saying he will “try... as always.”

In another electronic chat, a broker replied to a rate instruction from a trader by saying he was “putting the captain caos (sic) outfit on as we speak.”

One trader openly solicited several colleagues for rate submissions in a public chat group, but later on the same day a manager told the trader “Just be careful, dude“.

“I agree we shouldn’t have been talking about putting fixings for our positions on public chat,” the trader replied.

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