UBS AG (NYSE:UBS), Switzerland’s largest bank, became the second bank to admit active involvement in benchmark interest rates manipulation, after Barclays Plc (NYSE:BCS) (LON:BARC) who paid $450 million in June to settle similar charges. UBS AG (NYSE:UBS) agreed to pay approximately $1.5 billion to authorities in multiple countries to settle the rate-rigging scandal charges. The revelation is the next big blow to the Swiss Bank that is going through a rough patch amid thousands of job cuts, management upheaval and $2.3 billion losses due to a rogue trading scandal.
The U.K. Financial Services Authority stated on Wednesday, that it has identified more than 2000 attempts by UBS AG (NYSE:UBS) to manipulate the London interbank offered rate from 2005 to 2010. The authorities said that at least 45 UBS executives or traders either actively participated, or were aware of these widespread efforts. Additionally, UBS AG (NYSE:UBS) was engaged in collusive attempts with other banks to rig the benchmarks.
The Swiss bank bribed intern-dealer brokers for helping it manipulate the rates. UBS AG (NYSE:UBS) acknowledged that its employees were involved in manipulating Libor as well as other benchmark rates, including euro interbank offered rate (Euribor) and Tokyo interbank offered rate (Tibor). Together, these benchmarks form the basis for interest rates on over 350 trillion dollars worth of financial securities around the world. Much of the manipulation took place at the bank’s Japanese unit, which pleaded guilty on one U.S. count of fraud.
UBS AG (NYSE:UBS) senior managers directed traders to reduce Libor submissions, to create an impression that it was able to borrow at much cheaper rates than it was actually able to. Sergio Ermotti, the recently appointed chief executive of UBS AG said that about 40 employees involved in Libor manipulation have left the Swiss bank, or been asked to do so as a result of the investigation.
UBS AG (NYSE:UBS) will be paying $1.2 billion to the Commodity Futures Trading Commission (CFTC) and the U.S. Department of Justice, 160 million pounds to the United Kingdom’s Financial Services Authority, and approximately 60 million Swiss francs to Finma, the Swiss financial regulator. The penalty will definitely widen its fourth quarter losses, but the bank said it won’t raise new capital. The fine that UBS has agreed to pay is more than three times higher than what Barlcays Plc (NYSE:BCS) (LON:BARC) paid in June. The size of penalty shows that the Swiss bank was on the center of the scandal.
UBS AG (NYSE:UBS) and Barclays Plc (NYSE:BCS) (LON:BARC) are not the only banks that manipulated Libor. Over a dozen banks are also being investigated by the authorities in the European Union, the U.K., Japan, Canada and the United States.