UK Markets closed

Libor Rate-Rigging: UBS Pays £940m Penalty

(c) Sky News 2012

The Swiss bank UBS (Berlin: UBRA.BE - news) is to pay £940m, including £160m to regulators in Britain, to settle Libor rate-rigging investigations.

The fines, which amount to the second biggest penalty paid by a bank in the wake of the £1.2bn money laundering settlement announced by HSBC (LSE: HSBA.L - news) in the US last week, relate to manipulation of yen Libor and euroyen contracts.

The Financial Services Authority (FSA) said the case was "all the more serious" as UBS had attempted to manipulate Libor submissions at other banks, making corrupt payments to reward brokers for their efforts.

The FSA's report 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, $100,000 ... whatever you want ... I'm a man of my word."

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

The £940m fine goes to regulators in the US, UK and Switzerland and the bank said it could not rule out further penalties in future.

The total comes to more than three times the $290m fine levied on Barclays (LSE: BARC.L - news) in June for rigging the Libor benchmark rate used to price financial contracts around the globe from home loan rates to complex derivatives.

UBS says that around 40 people have left or been asked to leave the bank as a result of the Libor investigation and it now expected to report a loss of up to £1.7bn for the fourth quarter as a result of the case.

Chief executive Sergio 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."

In its statement, the FSA said UBS made "corrupt payments" of £15,000 per quarter to brokers for at least 18 months to reward them for helping the Swiss bank manipulate global interest rates.

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 orally.

Tracey McDermott, FSA director of enforcement and financial crime, said: "They manipulated UBS's submissions in order to benefit their own positions and to protect UBS's reputation, showing a total disregard for the millions of market participants around the world who were also affected by Libor and Euribor."

The FSA had already fined UBS £29.7m for failings which allowed a rogue trader to rack up losses of £1.4bn in an unrelated case.

Kweku Adoboli was jailed for seven years in November (Xetra: A0Z24E - news) after being found guilty of fraud.

The Libor scandal, which is expected to engulf other banks including RBS (LSE: RBS.L - news) , has resulted in pledges to reform how the rates are set.

The British Banking Authority, which currently oversees Libor, has agreed to give up that responsibility as part of the changes.

A criminal investigation in the UK, led by the Serious Fraud Office, resulted in its first arrests last week,

More From Sky News