On Friday, UBS AG (UBS – Analyst Report) successfully penned an immunity deal with European Union antitrust authorities, Wall Street Journal reported. As per terms of the deal, the Swiss bank will be safeguarded from incurring further fines for manipulation of benchmark interest rates.
EU authorities have rewarded UBS AG with such an arrangement for the bank’s cooperation with investigators to provide information about other banks’ involvement in such manipulations.
Notably, another European bank – Barclays PLC (BCS – Snapshot Report) was also rewarded with immunity last year. Therefore, based on the probe conducted by EU authorities, both these banks will not be punished further.
ValueWalk's Raul Panganiban interviews Kirk Du Plessis, Founder and CEO of Option Alpha, and discuss Option Alpha and his general approach to investing. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with Option Alpha's Kirk Du Plessis
The EU authorities are investigating banks which have disobeyed EU laws forbidding cartels and collusive activities. Therefore, by providing immunity, authorities are encouraging corporate wrongdoers to report such fraudulent actions.
Manipulation of LIBOR by major financial institutions facilitated thorough investigations by regulatory bodies across Europe, Asia and America. Investigations revealed huge scams with nearly $300 trillion of loans, mortgages, financial products and contracts being linked to the tampered LIBOR.
Regulatory authorities in the U.S. and the UK have come down hard on such unwarranted activities of banks including Barclays, UBS AG, Rabobank, broker ICAP and The Royal Bank of Scotland Group plc (RBS). These banks have reached an agreement by paying penalties of aggregately $3.7 billion. The banks also admitted to their wrongdoings.
Notably, other banks under the scrutiny of EU authorities include Germany’s Deutsche Bank AG (DB – Analyst Report), France’s Societe Generale Group and Credit Agricole SA, UK’s HSBC Holdings plc (HSBC) and the U.S.’s JPMorgan Chase & Co. (JPM – Analyst Report).
LIBOR is a widely accepted benchmark rate. Several financial institutions, mortgage lenders and credit card agencies lay down their own rates in relation to it. Derivatives and other financial products worth about $350 trillion are connected to LIBOR. Therefore, manipulation of the same will necessarily undermine the importance of the rate and can lead to unprecedented financial repercussions.
Therefore, with UBS AG’s cooperation coupled with assistance from other major banks, regulators are expected to solve LIBOR-related issues sooner or later. Currently, UBS AG holds a Zacks Rank #3 (Hold).