UBS to pay almost £1bn in fines

Fraud, bribery and rate-rigging in the banking industry were laid bare today as Swiss bank UBS agreed a £940m (€1.16bn) settlement with regulators in another damning day for the sector.

Britain's financial regulator said attempts at UBS to manipulate Libor interbank lending rates were "extensive and widespread", while it found traders were openly bribing and colluding with external brokers.

Today's fine, which includes a record £160m (€196.8m) penalty from the UK's Financial Services Authority (FSA), marks the biggest yet from the industry's Libor-rigging scandal and is far larger than the total of £290 (€356.75m) paid by Barclays for Libor manipulation this summer.

It also comes just a week after HSBC agreed a US$1.9bn (€1.44bn) settlement with US prosecutors over allegations that it allowed rogue states and drug cartels to launder billions of pounds through its American arm.

UBS agreed the settlement with regulators in the UK, US and Switzerland after admitting fraud in its Japanese arm and corrupt payments to brokers as it sought to manipulate Libor rates to flatter its own financial strength and reputation.

Libor is the umbrella term for benchmark rates that underpin the terms of $500 trillion (379.24 trillion euro) of contracts from mortgages to the cost of corporate lending.

The FSA said the misconduct was rife throughout the bank between 2005 and the end of 2010 as UBS traders routinely made requests to colleagues responsible for determining Libor and Euribor submissions in an effort to benefit their own trading positions.

It said that at least 45 individuals, including traders, managers and senior managers, were involved in, or aware of, the practice. The regulator recorded at least 2,000 requests for inappropriate submissions and said many more would have been made verbally.

Misconduct at the bank was so routine during the five-year period that every Libor and Euribor submission was at risk of having been manipulated, according to the FSA.

The FSA said misconduct at UBS was "all the more serious" as it had attempted to manipulate Libor submissions at other banks, making corrupt payments to reward brokers for their efforts.

The bank set up unnecessary trades, known as "wash trades", to bribe brokers for their help, which saw one broker firm make £170,000 (€209,128) in illicit fees.

UBS also made corrupt payments of £15,000 (€18,452.50) a quarter to another broker firm over at least 18 months, according to the FSA.

As well as the FSA fine, UBS also agreed to pay US$1.2bn (€910m) in combined penalties to the US Department of Justice and the Commodities Futures Trading Commission, and has been ordered to pay back 59 million Swiss francs (€48.8m) in profits made from Libor fixing to Swiss regulator Finma.

The bank also admitted committing wire fraud through its office in Japan relating to rate manipulation.

A report from the British FSA revealed incriminating conversations between UBS traders and brokers, saying they would "play the rules" and "return the favour".

One trader said: "I need you to keep it (the six-month Japanese Libor rate) as low as possible... if you do that... I'll pay you, you know, 50,000 dollars, 100,000 dollars... whatever you want... I'm a man of my word."

Bankers referred to each other in congratulatory terms, such as "the three muscateers" (sic), "Superman", and "Captain caos" (sic), the FSA added.

Finma discovered that a lot of the rate-fixing originated in UBS's Tokyo office.

According to details released by Finma, one trader asked another trader: "Could you do me favour would you mind moving you(r) 6 month l(i)bor up a bit today."

Sergio Ermotti, chief executive of UBS, said the group had "taken decisive and appropriate actions" following the investigation.

Between 30 and 40 people are understood to have left UBS or been asked to leave as a result of the investigation.

Mr Ermotti added: "We deeply regret this inappropriate and unethical behaviour.

"No amount of profit is more important than the reputation of this firm, and we are committed to doing business with integrity."

The rate-rigging investigation, which has embroiled about 20 financial institutions, has accelerated, with the first arrests by the Serious Fraud Office taking place last week.

It is understood that a former UBS trader was among three men arrested on Tuesday last week.

UK taxpayer-backed Royal Bank of Scotland has previously said it hopes to settle any claims over Libor manipulation soon and warned that potential penalties could be significant.

Today's settlement also shines the spotlight on the part played by broker firms in the rate-rigging scandal.

The FSA remained tight-lipped on which other firms are being investigated, saying only that it "continues to pursue a number of other significant cross-border investigations in relation to Libor and Euribor".

UBS said the fines were likely to see it report a loss of around 2 billion to 2.5 billion Swiss francs (€1.65bn to €2.07bn) for the fourth quarter.

The Zurich-based bank, which has around 6,500 staff in London, has endured a turbulent year after the jailing of rogue trader Kweku Adoboli.

It has also announced thousands of job cuts in recent months.