UBS to pay $1.5B in expanding Libor scandal

Swiss bank UBS AG's $1.5 billion fine for rigging global interest rates expands the scandal to include bribery and highlights the influence of a trader in Tokyo who colluded with other banks to align their submissions.

The employee led efforts to influence Japanese yen Libor submissions by paying brokers as much as $24,400 a quarter and offering a payment to another for helping him keep that day's rate low. The banker, identified by regulators as Trader A, worked at UBS in Tokyo from 2006 to 2009 and directly contacted employees at other banks to influence their submissions at least 80 times.

"I need you to keep it as low as possible," Trader A wrote to the broker on Sept. 18, 2008, referring to six-month yen Libor. "If you do that ... I'll pay you, you know, $50,000, $100,000... whatever you want ... I'm a man of my word," according to transcripts released Wednesday by the U.K. Financial Services Authority.

UBS was ordered to pay about $1.5 billion to American, British and Swiss regulators for trying to rig global interest rates, including the London interbank offered rate, during a six-year period. Regulators found that traders at the Zurich-based bank made more than 2,000 requests to its own rate submitters, traders at other banks and brokers to manipulate rate submissions through 2010.

FINE TOPS BARCLAYS'

The financial penalties are more than triple the $472.5 million fine Barclays Plc agreed to pay in June in the first settlement of Libor-rigging allegations. Barclays chief executive Robert Diamond and chairman Marcus Agius resigned in the face of political outrage over the scandal. UBS chief executive Sergio Ermotti joined the bank in April 2011, after the period covered by the rate-rigging investigations.

"UBS's misconduct is, although similar in nature, considerably more serious than Barclays' because it was more widespread within the firm," the Financial Services Authority said. "More individuals, including managers and senior managers, participated in or knew about the manipulation."

Libor, a benchmark for more than $300 trillion of financial products worldwide, is derived from a survey of banks conducted each day on behalf of the British Bankers' Association in London. Lenders are asked how much it would cost them to borrow from one another for 15 different periods, from overnight to one year, in currencies including dollars, euros, yen and francs.

BOASTFUL BRIBER

Trader A boasted that he was able to rig the benchmark because he was "mates with the cash desks" at one unnamed bank and that they "always helped each other out," a transcript of a Feb, 2, 2007 chat showed, according to the FSA.

At least 45 bank employees, including some managers, knew of the "pervasive" practice and a further 70 people were included in open chats and messages where attempts to manipulate Libor and Euribor were discussed, the financial agency said.

During the six-year period, four UBS traders, one of whom was a manager, made more than 1,000 written requests to 11 interdealer brokers at six brokerage firms, asking them to influence other panel banks that contributed to Japanese yen Libor submissions.

UBS TO PAY $1.2B IN U.S.

The findings are part of settlements with regulators in three countries over allegations UBS colluded to manipulate Libor and at least five other benchmarks. UBS will pay $1.2 billion in the United States, and the bank's unit in Japan agreed to enter a guilty plea to wire fraud for manipulating benchmark interest rates including yen Libor, UBS said. It was fined $260.7 million by the FSA and must disgorge $64 million in estimated profits to the Swiss Financial Market Supervisory Authority.

During 2007, Trader A made more than 450 requests to manipulate yen Libor submissions as he held large trading positions tied to the rate that matured at different times that year.

"Trader A embarked on a coordinated campaign to influence three month Japanese yen Libor for the benefit of those positions," the FSA said. "For this purpose, Trader A made internal requests, broker requests and external requests."

Trader A set up a complex system of payments to fellow UBS employees, counterparts at other banks and interdealer brokers to facilitate the manipulation of yen Libor, according to the FSA settlement.

$276,981 ILLICIT REWARD

Between Sept. 19 and Aug. 25, 2008, Trader A and a colleague entered into nine so-called wash trades as a means of rewarding an unidentified broker with more than $276,981 for helping rig the rate.

Wash trades are where a trader puts through two or more risk-free trades through a broker which cancel each other out while leading to a payment of brokerage fees to the broker arranging the trade.

In another arrangement, the trader bribed counterparts at other banks with so-called facilitation trades, where they agreed to submit favorable rates in exchange for beneficial trades with UBS.

On the occasions where Trader A's interests were in conflict with other traders within the bank, he entered facilitation trades with his colleagues.

MEMO FROM CAPTAIN CAOS

On Feb 5, 2007, the trader, calling himself Captain Caos contacted an individual known as Manager A on an electronic chat: "...last 3m fix if you cld keep high (6m wd prefer high but not urgent) and if we cld keep 1m low wd be appreciated, if doesn't suit let me know and maybe we can offset our fixes thx any help much appreciated. Captain Caos"

The traders and brokers called each other "the three muscateers," "superman" and "captain caos" and asked them to "be a hero today" in influencing submissions, the FSA said.

Thirty to 40 people have left the bank as a result of the investigations, Ermotti told reporters on a conference call, adding that behavior of some employees was "unacceptable." He said he doesn't expect any more departures.

The fine is another blemish on UBS, which is scaling back its investment bank to concentrate on wealth management. UBS said in October it may post a loss for 2012 after taking an impairment charge of $3.4 billion related to goodwill and other nonfinancial assets at the securities unit, in addition to costs tied to firing 10,000 people by 2015.

The bank said it expects to report a fourth-quarter loss of as much as $2.75 billion, primarily as a result of litigation provisions and regulatory matters.

"We want to move forward, and I think we're showing our determination in the bank to move forward and to change the bank for good," Ermotti said.