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MENAFN - AFP - 19/12/2012

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(MENAFN - AFP) British, US and Swiss regulators hit Swiss banking giant UBS with fines of 1.5 billion on Wednesday -- one of the biggest-ever such sanctions -- in a deepening scandal over rigging of the Libor interest rate at the heart of global financial markets.

The investigations revealed evidence of massive misconduct.

The bank said the settlement, equivalent to 1.2 billion euros, would likely push it into a net loss of between 2.0 and 2.5 billion Swiss francs (2.2-2.7 bn, 1.7-2.1 billion euros) in the fourth quarter.

The bank's share price showed a gain of 0.92 percent to 15.39 Swiss francs in early trading as investors welcomed the closing of the probe.

The Libor rate is a reference point for vast ranges of financial contracts around the world, and revelations that it had been rigged have damaged the reputation of the City of London financial centre.

"UBS agrees to pay approximately CHF 1.4 billion in fines and disgorgement to US, UK and Swiss authorities to resolve Libor-related investigations," it said in statement.

The bank, the biggest in Switzerland, will pay more three times the amount of the settlement reached in June with British bank Barclays, another one of the more than dozen banks investigated for trying to rig global interest rates.

UBS was the first bank to reveal problems in the rate-setting process of the Libor, an acronym for London Interbank Offered Rate, which estimates the rates at which banks lend money to each other and also affects huge numbers of contracts around the world.

Libor is calculated daily, using estimates from a list of banks of their own interbank rates.

Other banks are also reportedly in advanced talks with regulators about settling allegations that they too manipulated their Libor information, including Royal Bank of Scotland and Deutsche Bank.

As part of the one of the biggest fines ever slapped on a financial institution, UBS said its Japanese subsidiary would plead guilty to a US criminal offence.

Last week, British regulators made the first three arrests in the scandal that has shaken faith in the integrity of the global financial system.

UBS said it had agreed to pay 160 million (260 million) in fines to the UK Financial Services Authority, 59 million Swiss francs (64 million) the Swiss Financial Market Supervisory Authority (FINMA) and 1.2 billion to the US Department of Justice and the Commodity Futures Trading Commission (CFTC).

"During the course of these investigations, we discovered behaviour of certain employees that is unacceptable," UBS chief executive Sergio Ermotti said in the statement.

"Their misconduct does not reflect the values of UBS nor the high ethical standards to which we hold every employee.

Britain's FSA said that "misconduct was extensive and widespread", while Switzerland's FINMA said "UBS severely violated ... proper business conduct."

They found that UBS traders made numerous requests to bank employees to make Libor submissions to benefit the bank's trading position.

The FSA said it found records of over 2,000 such requests with an unquantifiable number made orally. It said every submission the bank made during the period probed was at risk of having been influenced to benefit the bank's trading position.

FINMA said most of the requests were made by a trader in Tokyo, who also contacted employees at other banks and independent brokers to try to influence their LIBOR submissions.

UBS said its Japanese subsidiary, UBS Securities Japan Co. Ltd., would plead guilty under the deal with US authorities to one count of wire fraud for manipulation of benchmark interest rates.

FINMA also found that during the 2007-2008 financial crisis "UBS managers inappropriately gave guidance to those employees charged with submitting interest rates, the purpose being to positively influence the perception of UBS's creditworthiness."

The FSA said "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's director of enforcement, Tracey McDermott, said in a statement that UBS had showed "a total disregard for the millions of market participants around the world who were also affected by LIBOR..."

The Swiss regulator said however it found no indication that UBS top management was aware of the misconduct, but that internal controls were inadequate.

Joe Rundle, head of treading at brokerage ETX Capital, said "this level of careless and excessive risk taking is a major blow for the banking industry..."

UBS said that it had cooperated fully with authorities and had taken corrective action.

"We deeply regret this inappropriate and unethical behavior," Ermotti said.

"No amount of profit is more important than the reputation of this firm, and we are committed to doing business with integrity."

UBS said it believed its fourth-quarter net profit attributable to shareholders would show a loss "primarily as a result of provisions for litigation and regulatory matters."

It estimated the net loss at 2.0 to 2.5 billion Swiss francs, with 2.1 billion in provisions for the Libor settlement plus claims related to sales of residential mortgage backed-securities (RMBS) and other matters.

The bank said it also expected to make restructuring charges of about 0.5 billion Swiss francs, and a charge of 0.4 billion francs to revalue the fair market value of financial liabilities.

Britain has moved to fix Libor, with the FSA recommending in September a "complete overhaul" which would strip industry body British Bankers' Association of its role in setting the rates and the oversight process handed to a new group.

 






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