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12.19.12

Speed Read: The Juiciest Bits From the UBS LIBOR Settlement


UBS is the second bank to make a major settlement for interest-rate manipulation. Matthew Zeitlin delves into the settlement to find the most damning evidence.

The LIBOR scandal continues to unfold. UBS, the Swiss bank, has agreed to pay $1.5 billion in a settlement with British regulators, while two traders face criminal charges in the U.S.

This follows Barclays, which paid $450 million to British and American regulators in June. Traders at both banks were caught attempting to fix LIBOR—the London Interbank Offered Rate, a baseline interest rate used to set the interest rates of $800 trillion worth of financial products, including credit cards and mortgages.

LIBOR is calculated by averaging the interest rates that a panel of London banks would be able to borrow at over different periods of time in different currencies. The settlement with the Financial Services Authority, the British financial regulator, details UBS not using LIBOR as an honest measure of the interest rates they could get, but instead as a way to profit from pushing the rate up or down through phony submissions.

Both the Barclays and UBS settlements show a combination of systemic corruption—senior officials who did not seem to care about illegal activity going on—and a tight-knit, foulmouth fraternity among the traders themselves. While the Barclays boys talked about buying each other Bollinger, the UBS fixers deployed nicknames, profanity, and a total disregard for the fact that their communications with each other might one day be made public. Here is the best of what the FSA dredged up.

1. The LIBOR fixing was absolutely rampant. The sheer number of requests UBS traders made from 2005 to 2010 to have the bank’s LIBOR submissions be at a certain level are staggering. The FSA complaint says that there were more than 800 requests for the yen LIBOR alone, and 115 for LIBORs in other currencies. At least 40 individuals were involved with the scheme, including 11 managers. Seven other managers who were not directly involved “were also aware of the practice of the manipulation of submissions to benefit trading positions.”

2. The UBS traders were so confident in making the requests that they sometimes stopped asking every day. The FSA complaint documents one manager in charge of the person submitting  two different LIBORs describing a trader’s request as a “standing order.”

3. UBS’s LIBOR manipulation was just about as rampant as possible. The FSA says,“Traders and Trader-Submitters routinely discussed their trading positions and made Internal Requests orally,” meaning that the records the FSA got their hands on may have only recorded a small portion of all of UBS’s LIBOR manipulation. The FSA said, “Every LIBOR and EURIBOR submission in currencies and tenors in which UBS traded is at risk of having been improperly influenced.”

“I will f--king do one humongous deal with you ... Like a 50,000 buck deal.”

4. UBS worked well with others. To properly manipulate LIBOR, a bank would work with other banks’ submitters, because the final number LIBOR number is an average and submissions at the low and high end are thrown out. Four UBS traders, including one manager, assiduously worked with other banks to manipulate some LIBORs. According to the FSA, they were “directly involved in making more than 1,000 documented requests to 11 Brokers at six Broker Firms.”

5. The traders knew exactly what they were doing. The most shocking bits of the FSA’s complaint are the quotes, showing that traders were both concerned about covering up their behavior and were totally aware how self-serving it was. One UBS trader said that he would “attempt to manipulate UBS’s submissions in ‘small drops’” in order to avoid suspicion. He also “referred explicitly to his UBS trading positions and the impact of the JPY LIBOR rate on those position.”

6. UBS traders entered into otherwise pointless trades in order to help out their compatriots in LIBOR manipulation. The FSA complaint details trades “which had no legitimate commercial Rationale” and whose only purpose was to funnel “corrupt brokerage payments to brokers as reward for their efforts to manipulate the JPY LIBOR submissions.”  The best quote from the entire complaint is when a UBS trader tells a broker “if you keep 6s [i.e. the six-month JPY LIBOR rate] unchanged today ... I will f--king do one humongous deal with you ... Like a 50,000 buck deal.” The FSA concludes that UBS did nine trades in order to funnel £170,000 to cooperating brokers. Sometimes they weren’t that sophisticated. The complaint says that “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.”

7. The traders and their compatriots had hilarious, awful, misspelled nicknames for each other. The FSA unearthed “documented communications where the LIBOR manipulators called themselves ‘the three muscateers’, ‘SUPERMAN’, ‘BE A HERO  TODAY’ and ‘captain caos’” [sic, sic, sic].