UBS fined nearly £1bn over Libor rate rigging as payments to brokers exposed

At least 2,000 requests for ‘inappropriate submissions’ to Libor were documented at the Swiss bank, leading the City watchdog to levy its largest ever fine

Swiss bank UBS made corrupt payments to brokers in an “extensive and widespread” attempt to manipulate key benchmark interest rates which has cost the bank Sfr1.4bn (£944m) in fines from global regulators.

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 – the £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 but the FSA said the UBS offences were “considerably more serious”.

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. The FSA feared every one of those submissions was potentially suspicious.

In an agreement with the US department of justice, the Japanese arm of UBS pleaded guilty to one charge of wire fraud, and is paying US regulators a total of £740m. It is the latest in a string of embarrassments for the City, following the record £1.2bn fine on HSBC for money laundering and £415m penalty levied on Standard Chartered for Iranian sanction-busting.

The City regulator said UBS had colluded with interdealer brokers to influence submissions to the yen Libor rate and that corrupt brokerage payments of thousands of pounds a quarter were made to reward brokers for their efforts to manipulate the Libor submissions of other banks on the Libor panel. 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” in order 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 [i.e. 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.

Five internal audits had failed to uncover the attempts to manipulate Libor.

Tracey McDermott, 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,” she said.

The Swiss regulator Finma said that most of the requests were made by one trader who worked in Tokyo from 2006 – 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.

Finma is requiring the bank – which had to be bailed out by Switzerland during the 2008 financial crisis – to pay Sfr59m (£40m) in disgorgement of profits.

UBS has already cleared out its top management. The latest reshuffle took place last year when a rogue trading incident was uncovered and led to the jailing last month of former trader Kweku Adoboli. Sergio Ermotti, chief executive, said the “misconduct” does not reflect the values of the firm. “We deeply regret this inappropriate and unethical behaviour. No amount of profit is more important than the reputation of this firm and we are committed to doing business with integrity,” Ermotti said. He said that 30 or 40 people had now left the bank. UBS will now report a loss this quarter as a result of the penalties.

Investigations continue into banks and other financial firms as part of the global probe into rate rigging. Royal Bank of Scotland is in settlement talks over its role.

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