(Photo credit: Wikipedia)
Swiss bank UBS is reportedly near a settlement with American and British regulators over interest-rate rigging. Such a deal would make UBS the second financial institution this year to admit to manipulating the London interbank offered rate, Libor.
UBS is expected to pay $450 million and admit that some employees reported false rates to increase profit, DealBook reports. That's identical to the fine that British bank Barclays agreed to pay. The fines, among the largest levied in this type of investigation, show the zeal of the regulators pursuing the Libor manipulation. Sensibly so, if you consider Libor's use. The rate, a measure of how much financial institutions charge other banks for loans, determines trillions of dollars in mortgages, credit card expenses and student loans.
Little effect, though, on UBS shares. New York-listed shares of UBS rose 0.3% in early afternoon trading. Worth noting: the fine is not even a tenth of UBS's annual revenue (expected at $32 billion this year). "Libor rigging was carried out by individuals on behalf of banks. Nine-figure fines paid by the banks, and zero prosecutions of individuals simply passes the tab onto the shareholders and does nothing to root out of the causes of this corruption?" says Cornelius Hurley, a Boston University law professor. "Where is the deterrent effect?" So far, no UBS executives have stepped down. When the scandal broke at Barclays, it led to the CEO's resignation and a shakeup in the company's highest offices.
As the broader Libor case grows—with probes of HSBC, JPMorgan Chase and Citigroup ongoing, and Deutsche Bank setting money aside for a potential settlement—the odds of regulatory reform increase. New policies that add a layer of transparency could help investors and consumers better understand the way Libor works.
The settlement with UBS could officially come as soon as the middle of this month. UBS last year had said it was under investigation, an undertaking that includes regulators across countries because Libor extends through many currencies.
Timing could not be much worse. Shares of UBS are off nearly 70% since the financial crisis, the result of several scandals that included accusations that UBS helped wealthy clients dodge taxes and a $2.3 billion loss from the actions of a rogue trader. Recent transition efforts included the split-up and spinoff of several assets. "Given that there also downside risks on execution, whether the slimmed-down investment bank will make money, whether the legacy asset losses will be bigger than forecast, we stay with our Hold recommendation," Deutsche Bank analyst Matt Spick last month wrote in a client note.
Reach Abram Brown at abrown@forbes.com.
