DealBook: Former UBS Executives Are Grilled Over Libor

Tal Cohen/European Pressphoto AgencyMarcel Rohner, former chief of UBS, leaving a parliamentary hearing in London on Thursday. “I did the best I could,” he told lawmakers.

LONDON – Several former senior executives at UBS were labeled on Thursday as negligent and incompetent for failing to detect illegal activity that led the Swiss bank to pay a $1.5 billion fine to global regulators.

On the second day of hearings at the British Parliament related to the recent rate-rigging scandal, Marcel Rohner, the former chief executive of UBS, and a number of former heads of the firm’s investment bank were grilled over whether they were aware that around 40 people had altered major benchmark interest rates for financial gain.

The executives, who no longer work at the Swiss bank, denied any knowledge about the illegal activity, and said they had only found out about the investigations into the firm conducted by the United States Justice Department, the United States Commodity Futures Trading Commission and international authorities late last year.

“What we have heard are appalling mistakes that can only be described as gross negligence and incompetence,” Andrew Tyrie, a politician who leads Parliament’s commission on banking standards that is investigating wrongdoing at the firms operating in London. “The level of ignorance seems staggering to the point of incredulity.”

UBS agreed to pay the multibillion-dollar fine in late 2012 to settle allegations that some of its traders altered the London interbank offered rate, or Libor, and the euro interbank offered rate, or Euribor, to increase their own profits. The benchmark rates underpin trillions of dollars of financial products, including mortgages, worldwide.

Some UBS senior managers also tweaked the bank’s submissions to present the Swiss bank in a better financial position than it actually was, according to regulatory filings.

Libor Explained

Mr. Rohner, who led UBS from 2007 to 2009. a period when the bank wrote down around $50 billion of sophisticated credit products, said he was embarrassed and ashamed by the misconduct related to Libor.

“I did the best I could,” said Mr. Rohner, who appeared taken aback by the angry questions from the British politicians, who repeatedly called his actions incompetent and negligent.

The former UBS chief executive said the firm’s operations had become too complex before the financial crisis, which had made it difficult to keep track of potential illegal activity by some of its employees.

The parliamentary hearing focused on speculation at the beginning of the financial crisis that highlighted banks’ so-called low-balling of rates. The practice involved submitting lower rates used in setting Libor in an effort to portray the firms in strong financial health despite a severe cut in lending between global financial institutions.

Mr. Rohner and three former chiefs of UBS’s investment bank, Huw Jenkins, Alex-Wilmot-Sitwell and Jerker Johansson, all denied being aware of the rate submissions in 2007 and 2008, when the bank raised billions of dollars of new capital to shore up its own finances.

“I had the responsibility to actively seek out information about things that concerned me,” Mr. Johansson, who ran UBS’s investment bank from 2008 to 2009, told the British parliamentary hearing on Thursday. “I failed to recognize this Libor issue as being one of these issues.”

Yet British politicians refused to believe that senior executives at the Swiss bank did not know about the Libor submissions at a time when the financial markets had been focused on the short-term financing problems of the world’s largest banks.

“You are stretching belief to its limit to get us to believe that you were completely unaware,” Andrew Love, a British politician on the parliamentary committee, told the former UBS executives .

The hearing also questioned several current and former senior members of the Financial Services Authority, Britain’s financial regulator, over their actions that led to the multibillion-dollar fine against UBS, the largest financial penalty so far levied against a bank in the continuing Libor investigation.

Hector Sants, the British regulator’s former chief executive, who is set to join Barclays as head of compliance, said banks should be more proactive in detecting potential illegal behavior, and called for greater oversight of global banks that operate in London. Barclays agreed to a $450 million settlement with global authorities last year related to the Libor investigation.

British regulators said that only nine out of the 40 individuals involved in the UBS rate-rigging scandal had worked in the country’s financial services industry, and that authorities were continuing to investigate a number of firms and individuals connected to the rate-rigging scandal.

“This is not the end of the Libor story,” said Tracey McDermott, director of enforcement and financial crime at the Financial Services Authority.

Article source: http://dealbook.nytimes.com/2013/01/10/former-ubs-executives-are-grilled-over-libor/?partner=rss&emc=rss