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US investigations UBS pleads guilty in Libor case and is set to pay fines

The latest financial penalties add to a list of payments to the US authorities


UBS is to pay combined fines of $545 million (CHF511.4 million) to conclude currency investigations by the United States authorities. The bank announced on Wednesday that the settlement includes a guilty plea over the rigging of Libor benchmark interest rates.

The penalty breaks down into a $342 million payment for the Swiss bank to the Federal Reserve for foreign exchange misconduct.

$203 million in fines is due to UBS’s forex activities breaching a previous deal made with the US over the rigging of the London interbank offered rate, Libor. This agreement was dependent on the bank adhering to US laws and staying out of trouble with the US authorities for two years. The deal was struck in 2012, and forex investigations started less than a year later, resulting in the non-prosecution status being scrapped.

The move signifies a tough stance by the authorities. It is the first instance of the US justice department going back on a non-prosecution agreement in a banking case. UBS had hoped for a different outcome, as it was the bank which had alerted the department to the market manipulation. It is also now in a three-year probation period with the justice department.

Totting up the bill

The fines add to around $800 million already paid by UBS to authorities in the US, the United Kingdom and Switzerland due to the bank’s involvement in forex fixing. Add that to $1.7 billion paid out in the Libor case and the bank has now amassed a $2.8 billion payout total for attempts to manipulate markets.

The investigations into Libor and forex fixing were the two most significant legal challenges the bank has had to deal with while scaling down its investment banking sector.

In a statement on Wednesday, UBS said they were “fully provisioned” for the fines, stating that the amounts to be paid will have “no financial impact on second quarter 2015 results”. Chairman Axel Weber and CEO Sergio Ermotti jointly commented: "The conduct of a small number of employees was unacceptable and we have taken appropriate disciplinary actions.”

In total, UBS and four other banks (Citigroup, Barclays, JP Morgan Chase and Royal Bank of Scotland) had to cough up $5.4 billion in penalties over the manipulation of foreign-exchange benchmarks.

Small victories

Instead of the CHF1 billion fine which some media outlets had been talking about, the number one Swiss bank ‘only’ got a $342 million fine for its role in the forex scandal, wrote Swiss newspaper Le Temps on Wednesday.

But the agreement with the US justice department over the Libor rates leaves a bitter taste, the paper went on to say. The bank will have no more room for error during the new three-year probation period. Although the $203 million fine for breaking the terms of their non-prosecution agreement may appear symbolic compared with the CHF2.7 billion UBS had built up in reserves at the end of the first quarter, the fact it had to plead guilty in the Libor case is still a risk factor.

It could lead to the bank being excluded from certain markets, potentially in relation to institutional investors. And more importantly it could open the gates to other civil complaints, as has been seen with banks in the US. and agencies

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