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.

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, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    0

    Comment number 208.

    More disgraceful conduct.

    The lot of them can burn in hell.

  • rate this
    +1

    Comment number 207.

    206.ProfessorBarney

    So you don't count a £940 Million fine as severe ?

    The London rioters destroyed & looted small businesses - burning down a family owned store in Croydon and leaving many people waiting months for cash from their insurance companies before they could re-open for business.
    LIBOR fixing affected large institutions - & quantifying any losses suffered is highly complex.

  • rate this
    +1

    Comment number 206.

    In the aftermath of the Tottenham riots the courts couldn't wait to punish offenders disproportionately for relatively minor infractions. This was done in order to "make an example of them" and make others think before committing similar deeds.
    There’s been no such urgency and severity with the LIBOR fixers I notice. Could it be one law for the suits and another for the shellsuits?

  • rate this
    +1

    Comment number 205.

    If all that happens is that the banks receive a (tax-deductible) fine then where are the ultimate controls to prevent this happening again?
    Like it or not, criminal charges will have to be brought and serious fines paid by guilty individuals, from their own pockets. In some cases prison sentences willbe necessary. These people cannot continue with a lifestyle earned by ripping off their clients

  • rate this
    0

    Comment number 204.

    201.Tim0thy
    "Why are the bank being fined why aren't the 45 in goal?"

    Probably because they're not playing football, and even if they were, it would have to be a pretty big goal to hold 45 people !
    On a more serious note - see comment 174 for the answer to your question.

  • rate this
    0

    Comment number 203.

    195.DrKnow

    "...being out of pocket because of LIBOR fixing ?"

    No - because it is extremely unlikely that any member of the public is out of pocket due to LIBOR fixing. The public don't really understand this whole situation. Whilst it was shady business practice, there have been other reported scandals that have affected the public far more as @199 Oldpip has pointed out...

  • rate this
    +2

    Comment number 202.

    184.torpare

    You seem to blaming "the system" for leading people astray. Yet that system was set up by....PEOPLE !!!
    Most people are honest but some people aren't and will milk any system to it's advantage if they have power to do so. This doesn't just apply to banking - it applies across the board. A small minority cause the corruption in the city - it isn't "fundamentally corrupt".

  • rate this
    +3

    Comment number 201.

    The emphasis is all on fines to the corporate bodies involved not the people carrying out the crime. The article quotes 45 employees of UBS as being involved. Why are the bank being fined why aren't the 45 in goal?
    If the banks are to be fined surely it is via the courts as compensation to wronged clients while criminal action is taken against those who committed the crimes.

  • rate this
    +1

    Comment number 200.

    Is anybody surprised? The finance industry has been pulling a fast one on its customers since before Shylock.

    Only, the banks get fined for hurting investors. Companies that unscrupulously exploit their workers, mostly in Asia to squeeze every cent of profit for their investors go scot-free, even if they cause hundreds of deaths, e.g. textile workers burnt to death working for H&M in Bangladesh!

  • rate this
    +1

    Comment number 199.

    This is nothing compared to the insurance company scams which have been going on for years.
    Companies do not act in the best interests of their clients.

  • rate this
    0

    Comment number 198.

    182. CML... err, yes it is. The cabal has been at it for a while... from the liveries to the modern day financial fixers. Remember the remembrancer, representing City interests in parliament and the City of London Corp with it's own police force... all presiding over a trading state within a state where the basic premise is profit at all costs. Caveat Emptor.

  • rate this
    0

    Comment number 197.

    DrKnow asks a good question. Where do the fines end up?
    Bonus payments for the FSA?

  • rate this
    0

    Comment number 196.

    Isn't it interesting that we are not allowed to comment on any of the headline LIBOR related stories directly since Barclays hit our news channels! We always seem to be palmed off (in the nicest possible way) to Robert's analysis piece.

    I would love to know if this has even been covered on the other side of the pond network news shows. The cynic in me doubts it somehow.

  • rate this
    -2

    Comment number 195.

    Errrrrrr.........WHAT happens to all these millions in fines ?

    Presumably they find their way to that bottomless pit - the TREASURY ?

    Will the Treasury now give us all tax rebates in compensation for being out of pocket because of LIBOR fixing ?

    I DOUBT it !!!

    The TREASURY - THAT is a REAL robber !!!

  • rate this
    +3

    Comment number 194.

    The US can fine UK and swiss banks for fiddling the LIBOR rate but when we will we fine the US banks for selling our dumb bankers bonds which were completely valueless, fraudulent selling surely. This is just another example of the USA's double standards and perhaps Obama's hatred of the UK vis 'British' Petroleum bad guys.

  • rate this
    +2

    Comment number 193.

    Fines, fines and more fines.

    Businesses and individuals were charged higher rates than they might have been.

    The banks shouldn't pay fines, but refund at least double the amount they stole to customers.

    Then, when those members of staff have done the refunds of the money they took - they should be sacked/jailed.

    Not a single part of this will happen, just fines, fines, fines.

  • rate this
    +3

    Comment number 192.

    Why are the majority of the fines for a Swiss bank fixing a rate in London paid into the USA's treasury?

  • rate this
    0

    Comment number 191.

    Like in several cases involving foreign companies, will a white American male be put into a top job at UBS?

  • rate this
    +3

    Comment number 190.

    Pay the fines to the regulators, run to the other end of the line and collect QE to Eternity, directly pumped into the zombies to stop them going bust overnight

    And they say crime doesn't pay - different rules for the bankstas

    Iceland got it right - see 'em bust and put 'em in jail, start again

    No other way

  • rate this
    +2

    Comment number 189.

    Robert Peston uses peculiarly forgiving language in this article. "Misbehaviour", he says! No, actually, "criminal behaviour" might be a better description because, er, they have broken the law. Are bankers the new Catholic priests, to be forgiven their criminal activity because they are part of a powerful organisation?

 

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