Ex UBS boss blames "mercenaries" for Libor debacle

The former chief executive of UBS blamed "mercenaries" for its role in the global interest-rate rigging scandal that has further undermined the Swiss bank's once venerable reputation.

UBS was fined a record $1.5 billion last month for manipulating Libor interest rates, the latest in a string of debacles - including a $2.3 billion rogue-trading loss and a tax avoidance row with the United States - that have rocked Switzerland's largest lender.

"In these pockets where we had these problems it wasn't probably a bad culture, but it was a lack of culture," Marcel Rohner told a British parliamentary panel investigating banking standards in the wake of the Libor scandal.

"When you grow a business too quickly you hire people from many different places and some of them ... you really have to qualify as mercenaries," he told the panel on Thursday.

Panel members accused Rohner and three other former UBS executives of gross negligence and incompetence for failing to detect the manipulation, which stretched back to 2005 and occurred when each of them had been in charge of the bank's investment business.

"The level of ignorance seems staggering to the point of incredulity," said Andrew Tyrie, who heads up the Parliamentary Commission on Banking Standards (PCBS). "Not only were you ignorant of what was going on, but you were out of your depth."

All four executives said the first they had heard of UBS's involvement in rigging Libor was from press reports in 2011.

Investigations by British, Swiss and U.S. regulators revealed rate manipulation on what the U.S. authorities called an "epic" scale.

UBS brokers and managers conspired with brokers to rig the rates to make money and openly boasted about what they were doing in emails and electronic chat rooms. Five internal audits failed to detect what was going on.

SHOCKED AND ASHAMED

Rohner said he was shocked and ashamed when he read about the rigging, but said during his period as CEO he was trying to save the bank from collapse and was unaware of the misconduct. He denied his leadership had been negligent.

"The times I was leading this institution were so extreme I was fighting permanently for survival," the Swiss national said in often heart-felt testimony. "I did the best I could."

Rohner was CEO for 20 turbulent months between 2007 and 2009, when UBS repeatedly had to tap shareholders for cash as it was forced to write down more than $50 billion worth of mortgage-related investments during the global financial crisis.

Thursday's panel session was the first public appearance by the 48-year old since he left the bank. He has not returned to full-time work.

Tyrie thanked Rohner and the other executives for showing contrition but panel member John McFall said they were like Captain Renault, the police captain in the film Casablanca.

"I would suggest you knew that gambling was going on and you went out the door with much more winnings than Captain Renault."

The British financial watchdog said interest rate rigging was so widespread at UBS that every submission it made over a six-year period from 2005 to 2010 inclusive was suspect.

Libor, the London interbank offered rate, is used as a benchmark for pricing trillions of dollars of loans globally. Even small inaccuracies in the rate affect investment returns and borrowing costs, meaning UBS and other banks implicated in the rigging scandal are at risk of costly civil lawsuits.

TANTAMOUNT TO STEALING

More than a dozen banks are under investigation in the Libor probe and further settlements with regulators are expected this year. Barclays paid a fine of $453 million for its role in the interest rate manipulation last year.

Under persistent questioning, Jerker Johansson, who headed the investment bank for just over a year from 2008, admitted management had been negligent not to detect the misconduct. He said the manipulation was tantamount to stealing.

UBS's new investment banking chief had on Wednesday outlined how the bank was axing 10,000 jobs and closing much of its fixed-income arm to focus on its flagship private banking business.

Rohner said pay structures needed to be linked to group profits and banks needed to be simplified and shrunk to avoid future scandals.

He said the two-tier board structure in place at many European banks, including UBS, did not work well during crises.

"It was dysfunctional. It means the supervisory board has all the responsibility but cannot act operationally ... that made the decision making a complete nightmare."

The PCBS, a cross-party panel of lawmakers, is expected to make recommendations on reforming the banking sector to government and the industry before the end of March.

The committee cannot compel the banks or the government to act, but its views are influential and Tyrie signaled its recommendations would be far-reaching.

"We've got to do far more than change the structure of banks. We fundamentally have to reform the governance, incentive structure and the overall supervisory approach right across the global financial industry," he said.

Thomson Reuters, parent company of Reuters, has been calculating and distributing Libor rates for Libor's sponsor, the British Bankers' Association, since 2005.

(Writing by Carmel Crimmins; Editing by Mark Potter)