UBS AG’s Libor Fine: How Did Management Miss The Signs?

By Tom
Updated on
UBS AG's Libor Fine: How Did Management Miss The Signs?

UBS AG (NYSE:UBS) pays fine in LIBOR scandal  Frankfurter Allgemeine Zeitung had:

1)      UBS pays 1.4 bio. SFR (roughly 1½ bio. USD) in fines and confiscated profits to US, GB and Swiss authorities. The lions share 1.2 bio. SFR goes to the US.

2)      The Japanese subsidiary of UBS AG (NYSE:UBS) pleads guilty in a single incident.

3)      The amount is 3 times the .45 bio. USD Barclays PLC (LON:BARC) (NYSE:BCS) had to pay and less than the 1.9 bio. USD HSBC Holdings plc (LON:HSBA) (NYSE:HBC) had to cough up.

UBS AG declares that certain employees were involved in manipulating the interest rate to support trading positions. A large part of the deal can be traced back to a single dealer employed in Tokyo from 2006 to 2009 according to the Swiss Bank Inspection, FINMA, that collects 0.06 bio. USD in illegal profits. FINMA does not find that senior management knew of the manipulation.

UBS-Konzernchef Sergio Ermotti, declared that about 40 employees had either left or had been fired due to the LIBOR manipulation. UBS had cooperated fully with the investigation and improved controls since.

We can’t just leave it there without comment:

a) Illegal shuffling is worth a fine of $1.5 Billion, it just happened without senior management knowing about it? Very credible, happens all the time that some chairwoman carts off the entire factory on the tea trolley?

b)   Just isolated employees in Japan? All 40? No charges filed??

c)   Look at the time frame: From 2006 till 2009. Axel Weber resigned as CEO of Bundesbank April 30th 2011, and his appointment as chairman of the board of UBS AG (NYSE:UBS)was announced mid-2011. His predecessor retired two years before time. Some things just don’t add up.

d) Sergio P. Ermotti was appointed Chairman and CEO of UBS’s Europe, Middle East, and Africa group and became a member of the Group Executive Board in April 2011. (Wikipedia)

e)The social democrats (government is conservative and liberal), will pull the German license of Swiss banks if they help tax-evaders, if they win the local election in Niedersachsen .

Now that is in itself not important, though a social democrat win there will give them majority in the Bundesrat (sort of senate, but not quite), that can be overruled by the parliament. But it is the first time I’ve seen pulling the licence mentioned.


i)  The reference to Japan should perhaps be tucked away for later rumination.

ii) Bringing in heavyweights as Axel Weber does indicate more than “poor health” of the predecessor and a solid  mistrust of the rest of the board. Ermotti was brought in from Unicredit in 2010. Unicredit is the largest Italian bank with Central and Eastern European interests – about the same size as UBS AG (NYSE:UBS).

iii) The vast share of the fines to the US does seem to indicate where the investigators information came from.

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