Swiss bank UBS admitted fraud and accepted a $1.5 billion fine yesterday for its role in manipulating global benchmark interest rates.
Dozens of UBS staff rigged the Libor rate, which is used to price trillions of dollars worth of loans, in collusion with brokers and traders at other banks, according to an investigation by authorities in multiple countries.
The controversy is expected to ensnare other big lenders and spark criminal and civil lawsuits against individuals involved. The penalty UBS agreed with US, UK and Swiss authorities far exceeds the $450 million levied on Britain’s Barclays in June, also for rigging Libor, and the second largest ever imposed on a bank.
“This is an endemic banking industry problem and shows how far the industry has fallen, failing itself and its customers,” said Neil Dwane, chief investment officer for Allianz Global Investors. “For the future it shows that without strong regulation and strong and new management throughout most of the biggest banks, there can be no reasonable expectation that they will improve their behaviour substantially – at least UBS now has strong new management.”
The UBS fine comes a week after Britain’s HSBC agreed to pay a record $1.92 billion to settle a probe in the United States into laundering money for drug cartels.
UBS’s unit in Japan pleaded guilty to one count of fraud relating to manipulation of benchmark rates, including the yen Libor.
The Libor benchmarks are used for trillions of dollars worth of loans around the world, ranging from home loans to credit cards to complex derivatives.
Tiny shifts in the rate, compiled from daily polls of bankers, could benefit banks by millions of dollars. But every dollar a bank benefited meant an equal loss by a bank, hedge fund or other investor on the other side of the trade – raising the threat of a raft of civil lawsuits.
The Libor settlement caps a torrid 18 months for UBS during which it lost $2.3 billion in a rogue trading scandal, underwent a management upheaval and made thousands of job cuts.