UBS faces $1 billion day of reckoning over interest rate rigging
UBS AG is expected to be hit with a $1 billion-plus fine to settle charges of rigging Libor interest rates this week, making it the second bank to be brought to book for its role in the global scandal.
The fine, to be imposed by regulators in Britain and the United States, would be the latest blow for the Swiss bank that suffered a rogue trading scandal last year, paid a $780 million fine to settle a U.S. tax investigation in 2009 and nearly collapsed in 2008 under the weight of huge subprime losses.
Sources familiar with the matter have told Reuters the fine will be $1 billion or more, which would be more than double the $450 million levied on British bank Barclays Plc in June for interest rate manipulation.
The penalty could be as high as $1.6 billion and UBS will admit 36 traders around the globe manipulated yen Libor between 2005 and 2010, Swiss newspaper Tages-Anzeiger said, citing unnamed sources.
UBS declined to comment on the report or on the timing of a settlement. Reuters could not independently verify the $1.6 billion figure.
"It's a little bit astonishing from a shareholder perspective that the fine could be double the amount of Barclays," said Peter Stenz, portfolio manager at investment and pensions manager Swisscanto and a holder of UBS shares.
"The good thing is that it is ended then ... The bad thing is the amount, which raises the question of how important UBS was in this story," Stenz said.
While Barclays' settlement touched off a firestorm that forced its chairman and chief executive to quit, previous scandals at UBS have already prompted culls of top bosses as well a decision to wind down parts of the investment bank that have tarnished the bank's name.
Swiss commentators suggested the Libor affair would stiffen the resolve of UBS top management - all installed after the period under investigation - to focus on the core business of wealth management as they trim risky trading activities.
However, the settlement - which sources say is likely to come sometime this week - could add to global public and political anger about standards and culture across the industry.
The settlement will be with U.S., British and Swiss regulators, although the last has no power to fine the bank. Japanese regulators are also involved, some sources said, although it was not clear if they would be formally involved in the penalties.
RATE MANIPULATION
UBS will admit to criminal wrongdoing by its Japanese arm, where one of its traders manipulated yen Libor and euro yen contracts, sources familiar with the matter have told Reuters. UBS declined to comment.
Admitting to criminal wrongdoing can be fatal for a bank, as it can lose its license but by admitting to wrongdoing at its Japanese subsidiary, UBS would be stopping short of admitting to wrongdoing at a group level.
Individuals are also being targeted. The UBS investigation centers on former UBS trader Thomas Hayes, but also includes other UBS bankers, the sources said. Hayes, who joined Citigroup after leaving UBS in 2009, is one of three British men arrested last week by London police but later released on bail, according to a source. Reuters has been unable to contact Hayes.
More than a dozen banks have been caught in the international inquiry into Libor rates, with most of the focus being on how rates were set between 2005 and 2008.
Royal Bank of Scotland is also expected to shortly reach a settlement on Libor manipulation. The bank will receive a penalty of more than 350 million pounds ($564 million), the Sunday Times newspaper reported, without citing sources. RBS declined to comment.
Libor benchmarks are used to help price trillions of dollars worth of loans around the world, ranging from home loans and credit cards to complex derivatives.
Tiny shifts in the rates, compiled from daily polls of bankers, could benefit any given bank by millions of dollars. But every dollar a bank benefits could mean an equal loss by another bank, hedge fund or investor on the other side of the trade - raising the threat of a raft of civil lawsuits.
Barclays in June admitted it improperly took its own trading positions into account when reporting interest rates used to calculate the Libor benchmark, touching off a firestorm that forced its chairman and chief executive to quit.
At UBS, Libor is the latest in a series of serious problems that have damaged its reputation. In 2009, UBS paid $780 million to settle a U.S. investigation into tax issues, while former London-based trader Kweku Adoboli was convicted last month over a $2.3 billion rogue trading fraud.
Reuters' parent company Thomson Reuters Corp collects information from banks and uses it to calculate Libor rates according to specifications drawn up by the British Bankers Association (BBA).
(Additional reporting by Emma Thomasson and Matthew Scuffham; Editing by Alexander Smith, David Holmes and Marguerita Choy)