UBS’s lies

By Felix Salmon
December 19, 2012

Call me naive, but after the Barclays revelations, I actually thought that I couldn’t be shocked about the extent of Libor manipulation. Boy, was I wrong. I could quote all 40 pages of the FSA notice fining UBS for Libor fraud: this is far, far worse than simply understating UBS’s borrowing costs so as to make investors think the bank was healthy. In fact, a lot of the fraud was designed to move Libor up rather than down: whatever the traders could make the most money manipulating.

The FSA concludes, quite explicitly:

UBS’s misconduct is, although similar in nature, considerably more serious than Barclays’ because it was more widespread within the firm, being exacerbated by the control failings, in particular the inherent conflict of interest in its submission function. More individuals, including Managers and Senior Managers, participated in or knew about the manipulation and there were more instances of individual manipulation, across more currencies. Furthermore, the extent to which UBS colluded with others was significantly greater and involved financial rewards being paid to Broker Firms.

The latter point is key: UBS didn’t just manipulate its own submissions, but actively attempted to manipulate other firms’ submissions as well. And at points the bribery was so explicit as to beggar belief that anybody would ever communicate such things on the record:

If you keep 6s [i.e. the six month JPY LIBOR rate] unchanged today … I will fucking do one humongous deal with you … Like a 50,000 buck deal, whatever … I need you to keep it as low as possible … if you do that …. I’ll pay you, you know, 50,000 dollars, 100,000 dollars… whatever you want.

A “50,000 buck deal” here does not mean a $50,000 deal: it means a $50 billion deal. If the broker on such a deal siphons off a fee of 0.0001%, that’s $50,000 right there.

The $1.5 billion that UBS is paying in fines here is enormous, but it’s not remotely enough: if the chairman and CEO of Barclays were forced to resign over much lesser Libor fraud, then we’re going to need to see heads roll at UBS too. And, with any luck, some individual criminal prosecutions of UBS executives, to boot.

That said, UBS has already taken the most drastic action it could: it has basically shut down its entire fixed-income business. That unit made enormous profits when things were going well — but it was staffed by rogue traders, who manipulated Libor rates around the world as a matter of course, and who on top of that contrived to lose mind-boggling amounts of money during the financial crisis.

Other fines, for other banks, are sure to follow this one — but if Barclays was dreadful and UBS was much worse than Barclays, it’s hard to imagine that anybody has clean hands here. You want to know why pretty much the entire financial sector is still trading at less than book value? This is why: the number of investors who trust the banks is now zero, and banking seems to have become a game of picking up fraudulent nickels in front of a relentless justice-department steamroller. (And for good measure there are all the civil suits as well: the $1.5 billion that UBS is paying today is just a down-payment on the all-in cost of its Libor fraud.)

The fixed-income department at UBS was the merged product of many storied firms: Swiss Bank, SG Warburg, Dillon Read, Paine Webber, Kidder Peabody, Phillips & Drew, and many others. And that’s the most depressing part of this whole story: there were good and honest managers at all those shops, and they all got pushed out by the fast-buck merchants. The inevitable conclusion: if you’re a senior fixed-income executive in the investment banking world, you’re necessarily suspect. Because this isn’t the kind of world where honest men live long.


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We have reached the point where we are using EU style kangaroo court justice to both limit the growth and hold down the valuations of the “SIFIs.”

The massive HSBC fine and now this group of Libor settlements is nothing more than a revenue grab. Banks aren’t paying as much in taxes because #1 they simply aren’t as profitable and #2 still have loss carryforwards from 08 and 09.

Speaking of 08 and 09 international bank regulators were pressuring banks to artificially lower Libor. The banks were happy to comply since they were desperate for the cheaper funding and would do ANYTHING to earn the love of central bankers and Treasury Secretaries who they knew would eventually pick who would live and who would die.

Any time you can bet upwards of a trillion dollars on a thin index or much worse in the case of Libor a privately set rate by a legal cartel this is what you get. Every player involved knew exactly what was going on.

Posted by y2kurtus | Report as abusive

Well to you, Y2K – “The massive HSBC fine” you mention amounts to a whopping one-month of pre-tax earnings based on last year’s results – that’ll show ‘em!

And to you, FS – troll, ho, shill with your fake outrage and HSBC-handouts – go down on some HSBC-….

Posted by MrRFox | Report as abusive

Excellent article Felix. Someone has finally said “The Emperor has no clothes!”

Posted by FifthDecade | Report as abusive

Excellent article, indeed !

As a multi-decades veteran of fixed-income and investment banking units of a number of bulge bracket firms, I have had the opportunity to observe first-hand the decline of accountability and the institutionalization of plausible deniability among the ranks of the purported “management” of places like UBS, Barclays, BofA, etc., and am delighted that Felix Salmon continues to do his homework and from time to time calls them out for their perfidy.

It’s sort of pitiful that, even now with the mountains of evidence and admissions of guilt in these cases, there still remain some credulous cheerleaders of these bumbling financial oligopolies who still think the “HSBC fine and now this group of Libor settlements is nothing more than a revenue grab.”

That sort of prompts my inner bond daddy wish I had some derivatives (levered on some obscure and illiquid index) to sell to those vocal naifs so very concerned about what they perceive as unjustified abuse of their beloved and blameless SIFI’s.

Posted by QueCosa | Report as abusive

OK, Felix, I’ll call you naive.

Anyone who thinks the banks and their executives think of ANYTHING except getting more money–their profits, their commissions, their bonuses–is officially, certifiably naive.

…even if it may lead to jail for some(although that remains a remote possibility for the vast majority of them).

Posted by Lilguy | Report as abusive

I love your steamroller quote, but considering that Lanny Breuer just said that not only the banks, but senior bank officials are too big to prosecute, I think that steam roller is the wrong vehicle for the metaphor.

It’s not a steamroller, it’s a bicycle icecream cart.

Posted by Matthew_Saroff | Report as abusive

Bigger issue: can someone say RICO? There was collusion for profit (not just reputation) among numerous firms and brokers. Despite the FSA concluding that the actions were not DELIBERATE MISCONDUCT on the part of UBS, I am not sure that matters.

Where is the Southern District (or Gerry Corrigan) when one needs them?

Posted by ExaminerCarter | Report as abusive

I didn’t think I’d say this, but I wish we had a showboater in the AG’s office. Guiliani c. 1980′s or Elliot Spitzer early 2000′s would have had some perp walks.

There probably are ‘good and honest’ managers in the mob and Mexican drug cartels, but it doesn’t change the fact they are criminal organizations. I don’t know how you can look at the TBTF banks and think they are anything other than criminal organizations.

And it’s not just a couple losers on the LIBOR desk, it goes to the Board and CEO.

Posted by scotta | Report as abusive

Lilguy is right on the money. Why would anyone expect anything else from high life criminals? Everyone knows that crime pays, so why be a penny ante “gansta” when you can make money big time?

Posted by Kaleberg | Report as abusive