UBS: How big will the Libor bill be?

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Even by the standards of recent revelations of wrongdoing at the world's biggest banks, the disclosures of how UBS tried to systematically manipulate the important Libor interest rate benchmarks will be seen as pretty hair-raising.

UBS has been punished by regulators in the US, UK and its home country of Switzerland. The Financial Services Authority (FSA) investigation catalogued at least 2,000 documented requests for inappropriate Libor submissions and countless verbal ones. The British regulator describes the misconduct as "extensive and widespread" and says at least 45 UBS bankers knew what was going on.

The fines and disgorgements of profits imposed on UBS, of £940m, is more than three times what Barclays paid earlier this year - when it became the first bank to settle the Libor cases against it. UBS's UK fine of £160m is the largest ever imposed by the FSA, even after a 20% discount for early settlement.

What may be most significant in UBS's case is that Swiss regulators at FINMA have proved that it profited from the market manipulation - which increases the risk that it may be forced to pay damages in civil litigation to customers on the wrong end of rigged interest rates.

The point is that when Barclays was punished, regulators were unable to demonstrate that it had actually made a profit from Libor rigging.

BBC's Robert Peston explains UBS Libor fine

Here is what will therefore trouble many banks: with Libor the benchmark for more than $300 trillion of financial products, the potential costs to them could be eye-watering if clients can prove they are out of pocket as a result of market rigging; and the UBS settlement will be seen by actual and potential claimants as strengthening their cause.

As I mentioned the other day, banks' sins during the boom years are costing them - and us - very dear, in fines and restitution to clients. The financial cost of atonement threatens to seriously deplete their capital and undermine their ability to create the credit essential for economic recovery.

The most serious misconduct by UBS appears to have been in yen interest rates. UBS Securities Japan has agreed to enter a plea with the US Department of Justice of one count of wire fraud relating to the manipulation of a number of benchmark interest rates, including Yen Libor.

The FSA says the manipulation went on between 2005 and 2010. It was, says the FSA, "discussed in internal open chat forums and group emails, and was widely known".

That open flouting of the rules raises the embarrassing question for regulatory bodies, including the FSA, of why the wrongdoing wasn't detected much earlier.

And there is also an important question for UBS, which is why so much bad stuff has happened at this bank in recent years - including massive losses on toxic debt during the crash of 2008, the £1.4bn loss from a trading fraud by Kweku Adoboli, a £500m settlement of a tax evasion probe in the US, and costs of claims related to sales of residential mortgage-backed securities.

There is the financial cost of all this: UBS announced this morning it would make losses in the fourth quarter of this year. But perhaps more importantly, there is the huge reputational damage for a bank that used to be seen as a rock of probity and stability.

That said, other banks cannot revel in UBS's discomfiture, given that most of them have been tainted by the scandal of their mis-selling and misbehaviour in the boom years.

Next up for humiliation and punishment for Libor wrongdoing, early in the new year, is expected to be the UK's semi-nationalised Royal Bank of Scotland. Fines and penalties imposed on it are likely to be rather more than Barclays' £290m, though less than what UBS is paying.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 28.

    I thought LIBOR was the London Interbank rate so why aren't the FSA at the forefront of this investigation. They always seem to be lagging reluctantly behind the Americans. They seem reluctant to prosecute white collar crime.

  • rate this

    Comment number 27.

    The FSA and yourself Robert should have seen this coming. It is in the initials UBS - Unbounded Banking Scoundrels. In addition to the FSA being asleep on the back seat (I am not sure they have ever been behind the wheel) there is the BBA which 'hosted' 'invigilated'. Are they and their CE at the time going to get some stick. RBS is largely nationalised so HMG were also asleep alongside the FSA?

  • rate this

    Comment number 26.

    Tax deductible because it is a business expense? If a tradesman gets fined for speeding on his way to work, can he claim the fine as tax deductible?

    What proportion of the fine goes to the governments of the countries involved? It seems that the US is taking the lead in all this. Our regulators seem wishy-washy. Will the UK receive a proportion of the fines yet to be levied on the US banks?

  • rate this

    Comment number 25.

    Some stiff prison sentences would send all the right signals in my opinion.
    Starting from the board room and going all the way to the trading floor.

  • rate this

    Comment number 24.

    5% of the UK prison population are women
    a majority of women in banking, less criminal activities.
    the FPC should have sentencing powers and should have at least 50 per cent female membership

  • rate this

    Comment number 23.

    What about people that have mortgages based on libor rate surely
    because of manipulation it must make them null & void no one would have signed up if they knew the rate was down to traders profit

  • rate this

    Comment number 22.

    Every day we discover that banks are behaving little better than the Mafia, with fraud, money-laundering, tax evasion and corruption systemic. Billions have been stolen and those responsible, rewarded with multi-million bonuses, are swanning it in their private yatchs and luxury villas.

    Banks pay fines, no one is fired or goes to jail, the govt cuts pensions and benefits.

    Fair enough?


  • rate this

    Comment number 21.

    Fundamentally, none of these greedy custards going to jail is wrong; money laundering, Libor fiddling, etc.

    They will just keep doing it and work for another bank. To the least, those people should be stripped off from financial sector forever.

  • rate this

    Comment number 20.

    I have always been puzzled by how good some banks and financialy institution in making money. Now I know. Just look around you. We don't need so called proof that most of us trusting folks are victims of frauds and manipulations.

  • rate this

    Comment number 19.

    As I said yesterday the banks probably do a comparison between what they make and what the fine may be.
    So, PPI, Endowments, LIBOR, excess bank charges etc, etc are well worth the effort.. This fine is probably less than a months profit for USB much like the HSBC fine for laundering was.
    Most banks seem to use fraud as the preffered business model amd still no-one is in jail.

  • rate this

    Comment number 18.

    What's this I am hearing on radio 4 that these fines are tax deductible. What about the case of CIR v Alexander von Glehn Ltd - are these fines wholly and exclusively for business purposes - I think not!!!! Come on Margaret Hodge where is your voice when we need it.
    HMRC handbook BIM 42515 if this does not apply, as a disgusted taxpayer I want to know why.

  • rate this

    Comment number 17.

    Lets not fine the banks, lets prosecute the people involved for fraudulent activity. Then seek to sieze some of their assets under proceeds of crime, as I'm sure more bonus payments would have flowed their way as as result of any manipulation - there weren't going to do it if it costs them were they!

    Only if there is a personal consequence to the behaviour of the bankers will things improve.

  • rate this

    Comment number 16.

    "The point is that when Barclays was punished, regulators were unable to demonstrate that it had actually made a profit from Libor rigging."

    You make it sound like a little cosy club, with everybody still turning a blind eye. How can the regulator not know or not investigate, whereas the swiss can.

  • rate this

    Comment number 15.

    FreeSpeech. Are you a customer of UBS? If not, I don't see how this fine is going to cost you a penny.

    Paul and Ruffidea I agree. But my understanding is that internal disciplinary action is being taken and criminal charges will be progressed against those directly responsible. But many of the guilty seem to be in UBS's Japan subsidiary, so you might not read about it in the UK press.

  • rate this

    Comment number 14.

    5."Where does the money go?"

    I suspect it never actually existed in the first place ...

  • rate this

    Comment number 13.

    'eck me! How much is this going to cost me now! Al fines will be pased on to customers as higher charges etc.
    Jail for fraud , get on with it!!
    (Fed up bank customer)

  • rate this

    Comment number 12.

    Frankly, it doesn't matter a jot how big the bill will be. Ultimately the taxpayer (and customers) will pick up the tab.
    The simple truth is that to the institutions involved these so called fines are nothing more that the cost of doing business.
    Until the people involved in anything deemed illegal are stripped of their assets and go to prison then nothing will change.

  • rate this

    Comment number 11.

    The bank didn't do anything wrong, it was people working in the bank that did this. So why fine the bank and let the people responsible laugh at us whilst continuing to collect their fat salaries.

  • rate this

    Comment number 10.


    Can you please try an explain for us why this is not fraud and why the relevant police serious crimes bodies seem totally disinterested in prosecuting those involved ? Nothing would do more to restore some element of public confidence than to see those responsible for this taken through the legal system. Is there some arcane reason this is not happening ?

  • rate this

    Comment number 9.

    Banks in good position to offset fines by skimming off interest rates given to savers etc. An equitable wrong in that such institutions can evade punishment via recoperating from vulnerable parties eg savers. It preserves the profitability of banks thus I guess West aims 2 preserve banks no matter as it is better than economic collapse & war as West cannot compete gainst East (China)??


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