UBS corrupt payments exposed as bank pays £940m to settle Libor claims

Swiss bank admits wrongdoing in settlement with multiple regulators over manipulation of inter-bank lending rates

guardian.co.uk, Jill Treanor, Wednesday 19 December 2012

UBS will hand over $1.5bn and admit wrongdoing at its Japanese arm to
settle Libor fixing claims. Photograph: Michael Buholzer/Reuters

The Swiss bank UBS has been fined £940m (1.4bn Swiss francs, US$1.53bn) by global regulators for "extensive and widespread" attempts to manipulate key benchmark interest rates known as Libor for five years.

This is the latest and most serious escalation of the rate-rigging scandal and exposes corrupt payments for the first time.

The £160m portion of the fine levied by the Financial Services Authority is the largest ever imposed by the City regulator and surpasses the previous record of £59.5m imposed on Barclays in June for attempted manipulation of the Libor and Euribor rates. The total Barclays fine was £290m and led to the resignation of chief executive Bob Diamond days later.

At UBS at least 2,000 requests for "inappropriate submissions" to the key rates were documented and at least 45 individuals "including traders, managers and senior managers were involved in, or aware of, the practice of attempting to influence submissions", the FSA said. It added that every one of those submissions was potentially suspicious.

The City regulator said UBS had colluded with interdealer brokers to influence submissions to the yen Libor rate and that corrupt brokerage payments of £15,000 a quarter were made to reward brokers for their efforts to manipulate the Libor submissions of other banks on the panel submitting rates.

The UBS fine exposes the full scale of the attempts to manipulate the two rates – London interbank offered rate (Libor) and the Euro interbank offered rate (Euribor).

In its report, the FSA said it had found a UBS trader agreeing with a counterpart that he would attempt to manipulate UBS's submissions in "small drops" to avoid arousing suspicion. The trader made it clear that he hoped to profit from the manipulation and referred explicitly to his UBS trading positions and the impact of the Japanese Libor rate on those positions. He offered to "return the favour" and entered into illicit transactions in order to incentivise and reward his counterparts.

For example, on 18 September 2008 a trader explained to a broker: "If you keep 6s [ie, the six-month Japanese yen Libor rate] unchanged today ... I will fucking do one humongous deal with you ... Like a 50,000 buck deal, whatever ... I need you to keep it as low as possible ... if you do that .... I'll pay you, you know, 50,000 dollars, 100,000 dollars... whatever you want ... I'm a man of my word."

Illicit fees of more than £170,000 were generated for the broker.

Tracey McDermott, the FSA director of enforcement and financial crime, said: "The findings we have set out in our notice today do not make for pretty reading. The integrity of benchmarks such as Libor and Euribor are of fundamental importance to both UK and international financial markets. UBS traders and managers ignored this.

"UBS's misconduct was all the more serious because of the orchestrated attempts to manipulate the Japanese yen Libor submissions of other banks, as well as its own, and the collusion with interdealer brokers and other panel banks in co-ordinated efforts to manipulate the fix."

The Swiss regulator Finma said most of the requests were made by one trader who worked in Tokyo from 2006 to 2009. "The same trader also contacted employees at third-party banks and independent brokers, thereby seeking to influence the Libor submissions of third-party banks," Finma said.

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