UBS Fined $1.5 Billion for Manipulating Libor

December 19, 2012

Swiss bank UBS has agreed to pay roughly $1.5 billion in fines to settle accusations that it was involved in rigging interest rates to boost its trading profits.

The bank acknowledged that its employees were involved in manipulating multiple benchmark rates, including the London interbank offered rate, more commonly known as the Libor and known as the world’s most important benchmark for interest rates. Roughly $10 trillion in loans and $350 trillion in derivatives are tied to the highly influential Libor rate.

The Wall Street Journal reports:

UBS AG agreed to pay regulators in three countries roughly $1.5 billion to settle accusations that it tried to rig benchmark interest rates, deals that came as U.S. authorities filed criminal charges against two of the bank's former traders.

The deals with UBS, which is the second bank to settle rate-rigging allegations, point to a broader manipulation scandal than was previously known. UBS acknowledged that dozens of its employees were involved in widespread efforts to manipulate the London interbank offered rate, or Libor, as well as other benchmark rates, which together serve as the basis for interest rates on hundreds of trillions of dollars of financial contracts around the world.

Authorities on Wednesday painted a picture of "routine and widespread" attempts by UBS employees to rig Libor and the euro interbank offered rate, or Euribor. The U.K. Financial Services Authority said it had identified more than 2,000 such attempts between 2005 and 2010 with the participation or awareness of at least 45 UBS traders and executives.

Regulators released a trove of internal UBS emails and other communications, many of them colorful and expletive-laden, in which bank traders, sometimes with the knowledge of their managers, sought to manipulate the rates in order to boost their trading profits or mask the Swiss bank's mounting financial problems in 2008.

Treasury Secretary Timothy Geithner has also found himself caught up in the Libor scandal. Geithner was called to testify before the Senate Banking Committee in July regarding his knowledge of the Libor scandal during his tenure as president of the New York Fed.

A few months following the hearing, Republican Sens. Chuck Grassley (Iowa) and Mark Kirk (Ill.) sent Geithner a letter accusing him of doing nothing to diminish the use of Libor despite having knowledge of its flaws. The senators demanded a full explanation from the Treasury Department regarding Geithner’s complacency, and announced that they would block Treasury nominations until they receive one.

The senators were dissatisfied by the response they received. Grassley’s office announced earlier this month that the Treasury Department’s response was incomplete and that the Senators would continue to block Treasury nominations.

"I hope we’ll receive a complete answer from Treasury soon detailing what actions Treasury did or did not take and whether Secretary Geithner would maintain public silence if he became aware of interest rate manipulation in the future," Grassley said. "Until then, the nominee hold stands."