UBS AG (VTX:UBSN, NYSE:UBS) announced this morning that its Board of Directors had authorized settlements of $1.2 billion with the U.S. Department of Justice (DoJ) and Commodity Futures Trading Commission (CFTC) in connection with LIBOR rate-rigging charges. Combined with settlements in the U.K. and Switzerland, UBS has agreed to pay $1.5 billion in fines and disgorgement. And as part of the proposed agreement with the DoJ, UBS Securities Japan Co. Ltd. has agreed to enter a plea to one count of wire fraud relating to the manipulation of certain benchmark interest rates, including Yen LIBOR.
The CFTC settlement is subject to the commission’s approval.
These settlements are part of an industry-wide investigation into what is one of the biggest financial scandals of our time.
LIBOR (for the London Interbank Offered Rate), together with EURIBOR, serves as the basis for interest rates on hundreds of trillions of dollars of financial contracts around the world. So it’s a big deal. LIBOR is calculated for ten currencies based on the average interest rate that leading banks in London estimate they would be charged if borrowing from other banks. The fact that LIBOR is based on estimated rates opened the door for manipulation as traders could tweak their estimates to help themselves, their banks or other traders who could be expected to reciprocate.
The only other bank to settle so far is Barclays which paid about $450 million in settlements. The seriousness of these charges is evidenced by the fact that both Barclays’ chief executive and its chairman resigned.
Dozens of banks in Europe, North America and Japan are still under investigation. New settlements with other banks are expected to be announced as these investigations move forward. In addition, it is being reported that some UBS employees will be charged criminally by U.S. authorities.