UBS will admit to criminal wrongdoing by its Japanese arm, where one of the Swiss bank's traders manipulated yen Libor and euroyen contracts, to secure a $1-billion-plus settlement with regulators, people familiar with the matter said on Friday.
Japan's financial regulator last December ordered UBS's Japanese securities arm to suspend Tibor- and Libor-related derivatives trading for a week after a probe found a former trader attempted to influence the Tokyo interbank offered rate.
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UBS, which declined comment, is expected to pay $1 billion or more as early as Monday to settle the interest rate rigging charges, the sources said. The UBS settlement could include manipulation of Libor rates in currencies other than yen, after clues to UBS's alleged central role in the Libor conspiracy were included in documents filed earlier this year by the Canadian Competition Bureau, which investigates anti-competitive activity.
A settlement would make it the second major bank after Britain's Barclays to be sanctioned for its role in the global scandal.
Libor is the interest rate used as a benchmark for pricing trillions of dollars worth of financial instruments and contracts around the globe. Tiny shifts in the rate, compiled from daily polls of bankers, could benefit dealers in complex products.
The penalty to be handed down by U.S. and British regulators is more than double the $450-million fine levied on Barclays in June for related behavior.
This could indicate the scope of the misconduct by UBS is worse than was exposed in the Barclays settlement, which prompted a public and political backlash about standards and culture across banking.
The specter of criminal charges against UBS comes as a blow to the bank's efforts to focus on its private bank, which caters to the financial needs of the world's wealthy. UBS is in the process of pulling out of riskier sectors, including some in fixed income, in order to reassure customers and shareholders.
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.
A deal will include the U.S. Department of Justice, the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC), Britain's Financial Services Authority and Switzerland's Finma, sources said. All of these declined to comment on the expected settlement.
Admitting to criminal wrongdoing can be fatal for a bank, as it can lose its license, and authorities are wary of pushing big banks to the brink. By admitting to the charge against its Japanese subsidiary, UBS is stopping short of admitting to wrongdoing at a group level.
The UBS investigation centers on former UBS trader Thomas Hayes, but also includes other UBS bankers, according to the sources.
Hayes, who joined Citigroup after leaving UBS in 2009, is one of three British men arrested and later released on bail by London police on Tuesday, according to a source familiar with the situation. A lawyer for Hayes could not be reached on Friday.
Between 25 and 30 people have left UBS as a result of the Libor rigging, the sources said. The bank had hoped for a softer touch from regulators by cooperating in industry-wide probes and was surprised by the size of the expected settlement, they added.
The criminal probe is not the first in recent UBS history. In 2009 it settled a messy U.S. investigation into tax evasion by admitting it had helped wealthy Americans evade and cheat on their taxes.
And the bank is still recovering from revelations about lax internal controls when London-based trader Kweku Adoboli was convicted last month over a $2.3-billion 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 Steve Slater; Editing by Alexander Smith)