UBS, Switzerland’s largest bank, is set to become the second financial institution to enter into a settlement arising out of the Libor rate-fixing scandal. The potential agreement would reportedly allow UBS to pay approximately $1 billion to settle allegations that it attempted to rig various interbank interest rates to increase trading profits. The deal would resolve investigations conducted by certain U.S., British and Swiss regulators, including the U.S. Department of Justice, the U.S. Commodities Futures Trading Commission, and the U.K. Financial Services Authority. UBS is expected to make the announcement next week, as early as Monday.
Although UBS was granted leniency for cooperating with investigators, this fine is more than double the $450 million paid by Barclays earlier this year to settle its role in the Libor scandal. The Libor rate is used to set borrowing rates for over $350 trillion worth of lending contracts worldwide. The Libor probe has involved approximately 20 of the biggest banks across three continents, involving regulators from the U.S., Canada, Europe, and Japan. Recently, British prosecutors arrested several individuals as part of a criminal investigation into rate manipulation. One of these individuals, Thomas Hayes, is a former UBS trader employed with the bank from 2006 to 2009. UBS is also facing investigations from the Canadian Competition Bureau, the Attorneys General of Connecticut and New York, and the Monetary Authority of Singapore. It was not immediately clear whether the Canadian Libor probe would be part of the imminent settlement.
The Libor settlement is just one of the problems encountered by UBS over the past year. Earlier this year, a rogue UBS trader cost the company $377 million before being jailed, and UBS reportedly had some involvement in issues arising out of the Facebook IPO. More recently, the company announced that it would lay off 10,000 employees as part of its efforts to wind down a significant part of the investment bank. (“UBS faces $1bn fine over Libor allegations,” CNN.com, December 14, 2012; “UBS in Talks Over $1 Billion Penalty,” The Wall Street Journal, December 13, 2012; “UBS faces $1 billion fine for Libor rigging,” Reuters, December 13, 2012).