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Reports: UBS Faces Fine Of More Than $1 Bln To Settle Libor Probes

Reports: UBS Faces Fine Of More Than $1 Bln To Settle Libor Probes
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12/13/2012 9:59 PM ET

Swiss banking giant UBS AG (UBS: Quote) could end up paying a fine exceeding $1 billion to settle allegations related to manipulation of key global benchmark interest rates, according to media reports on Thursday. A deal between the Swiss bank and global regulators could be announced as early as next week.

The UBS settlement is likely to end long-running probes of the bank by the U.S. Commodity Futures Trading Commission or CFTC, the U.S. Justice Department and the U.K. Financial Services Authority or FSA, in addition to Swiss regulators.

The resolution will be part of an industry-wide investigation by authorities that several banks, including UBS, sought to manipulate the London Interbank Offered Rate or Libor and the Euro Interbank Offered Rate or Euribor.

Libor is the average interest rate that lending banks in London charge when lending to other banks. The rate is considered as a benchmark for finance all around the world.

Libor is based on rate submissions from a relatively small and select panel of major banks, and is calculated and published daily for several currencies by the British Bankers' Association or BBA.

Libor impacts enormous volumes of swaps and futures contracts, commercial and personal consumer loans, home mortgages and other transactions. According to the BBA, swaps with a notional value of about $350 trillion and loans amounting to $10 trillion are indexed to Libor.

Authorities are also probing alleged efforts by UBS to manipulate Euribor. According to reports, UBS could simultaneously settle these separate allegations next week.

Euribor, which is calculated in a fashion similar to Libor by the European Banking Federation or EBF, is another globally important rate that measures the cost of borrowing in the Economic and Monetary Union of the European Union.

The UBS fine exceeding $1 billion would be more than double the 290 million pounds or $452 million paid by British banking giant Barclays plc (BCS: Quote,BARC.L) in June to settle similar allegations.

The Libor fine would cap a miserable year for UBS. The bank said in late October that it will cut about 10,000 jobs and exit from certain business lines within its investment bank division, as part of efforts to increase profitability.

In September 2011, UBS discovered a $2.3 billion loss due to unauthorized trading by a trader at its investment bank division. The rogue trading scandal hit the bank's investment banking arm and the trader was arrested on false accounting charges as well as fraud. The incident also cost UBS' then CEO Oswald Grübel his job.

In September this year, a federal jury in New York City convicted three former UBS executives for their participation in frauds related to bidding on contracts for the investment of municipal bond proceeds and other municipal finance contracts.

UBS posted a loss for the recent third quarter, hurt by impairment losses and a charge on its own credit, despite improved profits in all of its business divisions.

UBS closed Thursday's trading at $16.22, down $0.17 or 1.04 percent on a volume of 3.09 million shares.

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by RTT Staff Writer

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