By Pam Martens: December 19, 2012 

UBS, the global banking behemoth based in Switzerland, has agreed to settle charges over rigging the international interest rate benchmark known as Libor with U.K., U.S. and Swiss authorities.  The total settlement with all regulators will total approximately $1.5 billion. 

Later this morning, the U.S. Department of Justice and the Commodity Futures Trading Commission, which levied the bulk of the fines, will announce their findings.  The U.K.’s Financial Services Authority (FSA) earlier today revealed the details of an expansive conspiracy to rig rates that involved traders, managers, chat rooms, standing orders, at least 2,000 documented efforts to rig rates, and bribes and payoffs to other brokers. 

According to the FSA: 

UBS, through four of its traders, colluded with interdealer brokers to attempt to influence the Japanese Libor submissions of other banks. The brokers were in regular contact with various panel banks that contributed Japanese Libor submissions. The UBS traders (one of whom was a manager) were directly involved in making more than 1000 documented requests to 11 brokers at six broker firms. 

A UBS trader colluded with individuals at panel banks to make submissions in relation to Japanese Libor that benefited UBS’s trading positions.  UBS, through this trader colluded with these individuals in his attempt to influence the Japanese Libor submissions of four other banks by making more than 80 documented external requests, as well as making such requests orally. 

In the course of one campaign of manipulation, a UBS trader agreed with his counterpart that he would attempt to manipulate UBS’s submissions in “small drops” in order to avoid arousing suspicion. The trader made it clear that he hoped to profit from the manipulation and referred explicitly to his UBS trading positions and the impact of the Japanese Libor rate on those positions. He offered to “return the favour” and entered into facilitation trades and other illicit transactions in order to incentivise and reward his counterparts. 

A UBS trader entered into “wash trades” (i.e. risk free trades that cancelled each other out and which had no legitimate commercial rationale) through two broker firms in order to facilitate corrupt brokerage payments to brokers as reward for their efforts to manipulate the Japanese Libor submissions of Panel Banks. For example, on September 18, 2008, a trader explained to a broker: “if you keep 6s [i.e. the six month Japanese Libor rate] unchanged today … I will fucking do one humongous deal with you … Like a 50,000 buck deal, whatever … I need you to keep it 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.” UBS entered into at least nine such wash trades using this broker firm, generating illicit fees of more than £170,000 for the brokers. 

UBS made corrupt payments of £15,000 per quarter to brokers to reward them for their assistance for a period of at least 18 months.

The nature of the relationship and total disregard for proper standards by these traders and brokers is clear from the documented communications in which particular individuals referred to each other in congratulatory and exhortatory terms such as “the three muscateers [sic],” “SUPERMAN,” “BE A HERO TODAY,” and “captain caos [sic].” 

A number of UBS managers knew about and in some cases were actively involved in UBS’s attempts to manipulate Libor and Euribor submissions. In total, improper requests directly involved approximately 40 individuals at UBS, 11 of whom were managers. At least two further managers and five senior managers were also aware of the practice of the manipulation of submissions to benefit trading positions. 

The practice of attempts to manipulate Libor and Euribor submissions to benefit trading positions was often conducted between certain individuals in open chat forums and in group emails, which included at least a further 70 individuals at UBS. 

UBS marks the second bank to settle Libor charges. Barclays settled charges in June for $450 million.  RBS, JPMorgan Chase and Citigroup are also expected to settle charges.

See related articles:

Libor Scandal: The Unvarnished Story of Wall Street’s Heist of the Century

Libor Scandal Made Simple: It’s About Illegal Proprietary Trading