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UBS faces record fine of more than $1bn to settle allegations it manipulated Libor

Morgan Stanley: Investors 'applaud UBS' for closing chunk of investment bank

Financial Times —  

UBS faces a record fine of more than $1bn to settle allegations that it manipulated Libor as the worldwide probe into rigging of the benchmark rate gathers pace.

The bank and various authorities around the world are locked in last-minute negotiations that are likely to see UBS publicly settle as early as Monday, people familiar with the investigation told the Financial Times.

Such a fine would more than double the $450m Barclays paid in a then-record settlement over Libor this summer – despite UBS partially winning leniency for co-operating with authorities.

Read more: UBS in global talks over Libor settlement

A hefty fine over Libor-rigging would cap a terrible year for the Swiss-based bank that has seen a rogue trader go to jail, a SFr349m ($377m) loss on the botched Facebook IPO, and a curtailing of its once-mighty investment bank.

Its long chain of mishaps threatened to undermine the reputation of UBS’s core wealth-management business, and has contributed to the decision by chief executive Sergio Ermotti, and his new chairman, Axel Weber, two months ago to cut 10,000 jobs and wind down a sizeable part of the investment bank.

“After such high losses from operational and credit problems such as structured credit, rogue trading and Libor, investors applaud them closing a significant chunk of the investment bank and refocusing on wealth management,” said Huw van Steenis, an analyst at Morgan Stanley.

Read more: 7 years in prison for former UBS trader Adoboli in fraud case

UBS’s share price dropped slightly Thursday after the FT revealed the size of the Libor fine, ending the day 1 per cent down at SFr15.08. Even by September the bank had set aside SFr897m in legal provisions.

UBS’s compliance failures were underscored last month when a former trader was sentenced to seven years in prison for the biggest banking fraud in British history – a scandal that cost the bank $2.3bn in rogue trades, its chief executive, and a £29.7m fine levied by the UK’s Financial Services Authority.

That will be a fraction of the fine demanded by the FSA, along with the US Department of Justice and US Commodity Futures Trading Commission, and by Finma, UBS’s main Swiss supervisor, to settle Libor-manipulation allegations.

All four are expected to extract some sort of monetary settlement; Finma cannot impose fines but can demand that companies give up ill-gotten gains.

Libor is the umbrella term for benchmark rates that underpin the terms of $350tn of contracts from mortgages to the cost of corporate lending. The probe, which has embroiled about 20 of the world’s biggest banks and interdealer brokers, has accelerated with the first arrests taking place this week in the UK.

UBS, the FSA, Finma and the US authorities all declined to comment.