UBS will pay $545 million to US authorities to end an investigation into alleged manipulation of currency rates, a settlement that will help the Swiss bank to move on after a series of trading scandals.
The amount was lower than expected and this contributed to a more than three per cent rise in UBS shares to their highest level in six-and-a-half years.
UBS’s payment is part of what is expected to be a combined multibillion-dollar settlement by five of the world’s biggest banks with US and British authorities over alleged manipulation of the $5 trillion-a-day forex market.
The bank said yesterday the US Federal Reserve had fined it $342 million for its role in the forex scandal. UBS has not been charged because it was the first bank to report the misconduct to the US Department of Justice (DOJ). Four other banks, JP Morgan, Citigroup, Barclays and Royal Bank of Scotland, were expected to plead guilty to criminal charges later yesterday in relation to the forex investigation.
UBS also escaped any fine from the DOJ on the forex issues and said the DOJ would not prosecute it over investigations into its precious metals business.
The bank is now under a three-year probation period
Instead, the Swiss bank will have to plead guilty to one count of wire fraud and pay a $203 million fine for its role in rigging interest rate benchmark Libor after its involvement in the forex debacle breached an earlier DOJ agreement.
The bank is now under a three-year ‘probation’ period with the DOJ. It had already paid out $1.5 billion for its role in the Libor scandal.
“It couldn’t have been better,” Andreas Brun, an analyst with Zuercher Kantonalbank, said. “Most of it was already priced in but something around $1 billion was expected, including the Libor fee.”
Regulators had fined six banks $4.3 billion last year for failing to stop traders from colluding to try to manipulate forex rates. This followed a year-long inquiry which has put the largely unregulated forex market on a tighter leash and accelerated a push to automate trading.
South African authorities joined the global forex investigation this week, showing how the trading scandal is continuing to unfold.
In the forex settlement, JPMorgan and Citigroup are expected to be the first major US banks to plead guilty to criminal charges in decades. It would be unprecedented for the parent companies or main banking arms of so many major banks to plead guilty to criminal charges in a coordinated action.
The impact of guilty pleas by the parent companies or main banking arms of major banks is uncertain. The banks are seeking assurances from US regulators they will not be barred from certain businesses if they plead guilty, several sources familiar with situation said.
UBS said the new fines would not affect its earnings. Overall, UBS has paid $2.84 billion of the $13.7 billion in global fines levied over attempted manipulation of the forex market and Libor.
Britain’s Barclays is also expected to reach settlements with British and other US authorities, which means its penalties could be significantly higher than the other banks and top $2 billion. Barclays has set aside $3.2 billion to cover any forex fines, and other banks also have provisions for settlements. Barclays did not join the November forex settlement with British and some US authorities due to complications with its regulator in New York.
The DOJ has been negotiating with the banks for months over how to resolve the forex allegations. Transcripts of online chat rooms made public in November showed how traders shared confidential information about client orders and otherwise conspired to benefit their own transactions.