UBS faces $1.5 billion day of reckoning over rate rigging

Mon Dec 17, 2012 8:43am EST
 
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By Katharina Bart and Steve Slater

ZURICH/LONDON (Reuters) - UBS AG UBSN.VX will pay around $1.5 billion to settle charges that a group of traders at its Japanese unit rigged Libor interest rates, a source familiar with the matter said on Monday as the Swiss bank prepares for a deal with regulators.

The fine, to be imposed by the United States and Britain, would be the latest blow to UBS after a $2.3-billion rogue trading loss in London last year, a $780-million fine after a U.S. tax investigation in 2009 and its near collapse in 2008 under the weight of losses on U.S. sub-prime mortgage lending.

UBS will admit that roughly 36 of its traders around the globe manipulated yen Libor between 2005 and 2010, according to the source, with a final deal not expected before Wednesday.

The source said settlement talks are now centering on a fine in the region of $1.5 billion - somewhat higher than source were predicting last week and three times the $450 million levied on British bank Barclays Plc BARC.L in June for similar manipulation of benchmark interest rates.

The fine against UBS, whose spokesman declined comment, would be the second-largest ever levied against a bank for wrongdoing, after Britain's HSBC HSBA.L last week agreed to pay $1.92 billion to settle a probe in the United States into laundering money for drug cartels. <ID: nL4N09L1YE>

The stiff penalty would, however, have only a limited financial impact on UBS. It earned 4.233 billion Swiss francs ($4.59 billion) in net profit last year and the bank has spent much of this year and last bolstering its capital.

UBS shares, which hit their highest level in 18 months last week at 15.29 francs, were last down 0.8 percent at 14.92 francs, in line with a drop in the wider European bank index.

Paying $1.5 billion to settle the Libor probe would shave 50 basis points off UBS's capital ratios, Kepler Capital Markets analyst Dirk Becker estimated: "Even after the fine, UBS would still be better capitalized than other banks."   Continued...

 
The logo of Swiss bank UBS is seen on a building in Zurich December 17, 2012. REUTERS/Michael Buholzer