UBS Libor fine soars as traders bribed brokers to fix rate

Yen Libor

“Trader A embarked on a coordinated campaign to influence three month Japanese Yen Libor for the benefit of those positions,” the FSA said. “For this purpose, Trader A made internal requests, broker requests and external requests.”

Trader A set up a complex system of payments to fellow UBS employees, counterparts at other banks and interdealer brokers to facilitate the manipulation of yen Libor, according to the FSA settlement.

Between Sept. 19 and Aug. 25, 2008, Trader A and a colleague entered into nine so-called wash trades as a means of rewarding an unidentified broker with more than 170,000 pounds for helping rig the rate. Wash trades are where a trader puts through two or more risk-free trades through a broker which cancel each other out while leading to a payment of brokerage fees to the broker arranging the trade.

In another arrangement, the trader bribed counterparts at other banks with so-called facilitation trades, where they agreed to submit favorable rates in exchange for beneficial trades with UBS. On the occasions where Trader A’s interests were in conflict with other traders within the bank, he entered facilitation trades with his colleagues.

Help Appreciated

On Feb 5, 2007, the trader contacted “Manager A” on an electronic chat: ” ...last 3m fix if you cld keep high (6m wd prefer high but not urgent) and if we cld keep 1m low wd be appreciated, if doesn’t suit let me know and maybe we can offset our fixes thx any help much appreciated.”

The traders and brokers called each other “the three muscateers,” “superman” and “captain caos” and asked them to “be a hero today” in influencing submissions, the FSA said.

Thirty to 40 people have left the bank as a result of the investigations, Ermotti told reporters on a conference call, adding that behavior of some employees was “unacceptable.” He said he doesn’t expect any more departures.

The fine is another blemish on UBS, which is scaling back its investment bank to concentrate on wealth management. UBS said in October it may post a loss for 2012 after taking an impairment charge of 3.1 billion francs related to goodwill and other non-financial assets at the securities unit, in addition to costs tied to firing 10,000 people by 2015. The bank said it expects to report a fourth-quarter loss of between 2 billion francs and 2.5 billion francs, primarily as a result of litigation provisions and regulatory matters.

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