UBS to pay $1.5bn to settle charges that traders rigged Libor rates

UBS AG will pay around $1.5bn (€1.15bn) to settle charges that a group of traders at its Japanese unit rigged Libor interest rates, a source familiar with the matter said yesterday as the Swiss bank prepares for a deal with regulators.

The fine, to be imposed by the US and Britain, would be the latest blow to UBS after a $2.3bn rogue trading loss in London last year, a $780m fine after a US tax investigation in 2009 and its near collapse in 2008 under the weight of losses on US sub-prime mortgage lending.

UBS will admit that roughly 36 of its traders around the globe manipulated yen Libor between 2005 and 2010, according to the source, with a final deal not expected before tomorrow.

The source said settlement talks are centring on a fine in the region of $1.5bn — somewhat higher than predicted and three times the $450m levied on British bank Barclays in June for similar manipulation of benchmark interest rates.

The fine against UBS, whose spokesman declined comment, would be the second-largest ever levied against a bank for wrongdoing, after Britain’s HSBC last week agreed to pay $1.92bn to settle a probe in the US into laundering money for drug cartels.

The stiff penalty would, however, have only a limited financial impact on UBS. It earned 4.233 billion Swiss francs (€3.52 billion) in net profit last year and the bank has spent much of this year and last bolstering its capital.

Paying $1.5bn to settle the Libor probe would shave 50 basis points off UBS’s capital ratios, Kepler Capital Markets analyst Dirk Becker estimated: “Even after the fine, UBS would still be better capitalised than other banks.”

UBS is also benefiting from its decision in October to withdraw from riskier areas of fixed income activities which soak up large amounts of capital.

In doing so, UBS is slashing risky assets more aggressively than rivals such as Credit Suisse and Germany’s Deutsche Bank. That in turn bolsters capital ratios.