UBS, Switzerland’s largest bank, is set to become the second financial institution to enter into a settlement arising out of the Libor rate-fixing scandal. The potential agreement would reportedly allow UBS to pay up to $1.6 billion to settle allegations that it attempted to rig various interbank interest rates to increase trading profits. The deal would resolve investigations conducted by certain U.S., British and Swiss regulators, including the U.S. Department of Justice, the U.S. Commodities Futures Trading Commission, and the U.K. Financial Services Authority. As part of the deal, UBS’s banking subsidiary in Japan, UBS Securities Japan Ltd., will plead guilty to a criminal charge, and UBS will admit that several of its traders manipulated the Japanese Yen Libor rate from 2005 to 2010. It has also been reported that U.S. prosecutors will file criminal charges against certain individuals as part of the settlement process, although UBS the parent company will avoid any criminal charges in exchange for paying the large fine.
Although UBS was granted leniency for cooperating with investigators, this fine is more than triple the $450 million paid by Barclays earlier this year to settle its role in the Libor scandal. The Libor rate is used to set borrowing rates for over $350 trillion worth of lending contracts worldwide. The Libor probe has involved approximately 20 of the biggest banks across three continents, involving regulators from the U.S., Canada, Europe, and Japan. Recently, British prosecutors arrested several individuals as part of a criminal investigation into rate manipulation. One of these individuals, Thomas Hayes, is a former UBS trader employed with the bank from 2006 to 2009. UBS is also facing investigations from the Canadian Competition Bureau, the Attorneys General of Connecticut and New York, and the Monetary Authority of Singapore. It was not immediately clear whether the Canadian Libor probe would be part of the imminent settlement.
The Libor settlement is just one of the problems encountered by UBS over the past year. Earlier this year, a rogue UBS trader cost the company $377 million before being jailed, and UBS reportedly had some involvement in issues arising out of the Facebook IPO. More recently, the company announced that it would lay off 10,000 employees as part of its efforts to wind down a significant part of the investment bank.
(“UBS May Face $1.6B Penalty as Libor Settlement Looms,” Bloomberg, December 16, 2012s; “A Shadow Over Banks as UBS Nears Deal,” The Wall Street Journal, December 16, 2012; “UBS faces $1.6 billion fine over Libor rigging: paper,” Reuters, December 15, 2012).