UBS’s $1.5bn fine for rigging global interest rates expands the scandal to include bribery and highlights the influence of a trader in Tokyo who colluded with other banks to align their submissions.
The employee led efforts to influence Japanese yen Libor (London interbank offered rate) submissions by paying brokers as much as £15,000 a quarter and offering a payment to another for helping him keep that day’s rate low. The banker, identified by regulators as Trader A, worked at UBS in Tokyo from 2006 to 2009 and contacted employees at other banks to influence their submissions at least 80 times.
"I need you to keep it as low as possible," Trader A wrote to the broker on September 18 2008, referring to six-month yen Libor. "If you do that … I’ll pay you, you know, $50,000, $100,000 … whatever you want … I’m a man of my word," according to transcripts released by the UK Financial Services Authority (FSA) on Wednesday. UBS was ordered to pay about $1.5bn to US, UK and Swiss regulators for trying to rig global interest rates, including Libor, over a six-year period.
Regulators found that traders at the Zurich-based bank made more than 2,000 requests to its own rate submitters, traders at other banks and brokers to manipulate rate submissions through 2010.
The financial penalties are more than triple the £290m fine Barclays agreed to pay in June in the first settlement of Libor-rigging allegations. Barclays CEO Robert Diamond and chairman Marcus Agius resigned in the face of political outrage over the scandal. UBS CEO Sergio Ermotti joined the bank in April last year, after the period covered during the rate-rigging investigations.
"UBS’s misconduct is, although similar in nature, considerably more serious than Barclays’ because it was more widespread within the firm," the FSA said.
"More individuals, including managers and senior managers, participated in or knew about the manipulation," it said.
UBS rose 1.5% to Sf15.48 ($17.01) in Swiss trading on Wednesday. Libor, a benchmark for more than $300-trillion of financial products worldwide, is derived from a survey of banks conducted each day on behalf of the British Bankers’ Association in London. Lenders are asked how much it would cost them to borrow from one another for 15 different periods, from overnight to one year, in currencies including dollars, euros, yen and francs.
Trader A boasted that he was able to rig the benchmark because he was "mates with the cash desks" at one unnamed bank and that they "always helped each other out," a transcript of a February 2 2007 chat showed, according to the FSA.
At least 45 bank employees, including some managers, knew of the "pervasive" practice and a further 70 people were included in open chats and messages where attempts to manipulate Libor and Euribor were discussed, the FSA said. During the six-year period, four of UBS’s traders, one of whom was a manager, made more than 1,000 written requests to 11 interdealer brokers at six brokerage firms, asking them to influence other panel banks that contributed to Japanese yen Libor submissions.
The findings are part of settlements with regulators in three countries over allegations UBS colluded to manipulate Libor and at least five other benchmarks.
In 2007, Trader A made more than 450 requests to manipulate Yen Libor submissions as he held large trading positions tied to the rate that matured at different times that year.
"Trader A embarked on a coordinated campaign to influence three month Japanese Yen Libor for the benefit of those positions," the FSA said.
"For this purpose, Trader A made internal requests, broker requests and external requests."
Between September 19 and August 25 2008, Trader A and a colleague entered into nine "wash trades" as a means of rewarding an unidentified broker with more than £170,000 for helping rig the rate. A wash trade is one in which a trader puts through two or more risk-free trades which cancel each other out, while leading to payment of brokerage fees to the broker arranging the trade.
In another arrangement, the trader bribed counterparts at other banks with facilitation trades, where they agreed to submit favourable rates in exchange for beneficial trades with UBS.
On the occasions where Trader A’s interests were in conflict with other traders within the bank, he entered facilitation trades with his colleagues.
The traders and brokers called each other "The Three Muscateers", "Superman" and "Captain Chaos" and asked them to "be a hero today" in influencing submissions, the FSA said.
Up to 40 people have left the bank as a result of the investigations, Mr Ermotti said, adding that behaviour of some employees was "unacceptable".
The fine is another blemish on UBS, which is scaling back its investment bank to concentrate on wealth management.
UBS said in October it may post a loss for 2012 after taking an impairment charge of Sf3.1bn related to goodwill and other non-financial assets at the securities unit, in addition to costs tied to firing 10,000 people by 2015.
The bank said it expected to report a fourth-quarter loss of Sf2bn-Sf2.5bn, primarily as a result of litigation provisions and regulatory matters.
The bank did not qualify for the regulator’s standard 30% discount for co-operation because the settlement was reached later, the FSA said.
UBS received a 20% discount.
UBS was fined £29.7m last month by the FSA and told by the Swiss regulator it may have to increase capital levels for operational risks after a $2.3bn loss from unauthorised trading by Kweku Adoboli.
The former trader in UBS’s London office was sentenced to seven years in jail on November 20 for fraud in relation to the loss, the largest from unauthorised trading in British history.