June 25, 2024

DealBook: R.B.S. to Pay $612 Million Over Rate Rigging

A branch of the Royal Bank of Scotland in Edinburgh.David Moir/ReutersA branch of the Royal Bank of Scotland in Edinburgh.

LONDON – The Royal Bank of Scotland on Wednesday struck a combined $612 million settlement with American and British authorities over accusations that it manipulated interest rates, the latest case to emerge from a broad international investigation.

In an embarrassing blow to the bank, its Japanese subsidiary also pleaded guilty to criminal wrongdoing in its settlement with the Justice Department. The R.B.S. subsidiary, a hub of rate-rigging activity, agreed to a single count of felony wire fraud to resolve the case.

The settlement reflects the Justice Department’s renewed vigor for punishing banks ensnared in the rate manipulation case. In December, a Japanese subsidiary of UBS pleaded guilty to felony wire fraud as part of a larger settlement, representing the first unit of a big bank to agree to criminal charges in more than a decade.

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As authorities built the R.B.S. case, they seized on a series of incriminating yet colorful e-mails that highlighted an effort to influence the rate-setting process, a plot that spanned multiple currencies and countries from 2006 to 2010. One senior trader expressed disbelief at reaping lucrative profits from the scheme, saying “it’s just amazing” how rate “fixing can make you that much money,” according to the government’s complaint. Another trader, after pressuring a colleague to submit a certain rate, offered a reward of sorts: “I would come over there and make love to you.”

In a statement on Wednesday, the American regulator leading the case slammed the bank for manipulating benchmarks like the London Interbank Offered Rate, or Libor. The regulator, the Commodity Futures Trading Commission, noted that R.B.S. employees “aided and abetted” UBS and other firms in the rate-rigging scheme and continued to run afoul of the law, though more covertly, even after learning of a federal investigation.

“The public is deprived of an honest benchmark interest rate when a group of traders sits around a desk for years falsely spinning their bank’s Libor submissions, trying to manufacture winning trades. That’s what happened at R.B.S.,” David Meister, the enforcement director of the commission, said in the statement.

Libor Explained

The settlement represents the latest setback for Royal Bank of Scotland, which has struggled to shake the legacy of the 2008 financial crisis. The British firm already has put aside $2.7 billion to compensate customers who were inappropriately sold loan insurance over recent years. On Jan. 31, British regulators also called on the bank and other local rivals to review the sale of interest-rate hedging products after more than 90 percent of a sample were found to have been sold improperly.

The broader rate-rigging case has centered on how much the Royal Bank of Scotland and a dozen other banks, including Citigroup and HSBC, charge each other for loans. Such benchmarks, including Libor, help determine the borrowing costs for trillions of dollars in financial products like corporate loans, mortgages and credit cards.

But the Royal Bank of Scotland, like many of its competitors, corrupted the process. Government complaints filed over the last year outlined a scheme in which banks reported false rates to lift trading profits and deflect concerns about their health during the crisis.

Authorities filed the first Libor case in June, extracting a $450 million settlement with the British bank Barclays. In December, UBS agreed to a record $1.5 billion settlement with European regulators, the Justice Department and the American regulator that opened the case, the Commodity Futures Trading Commission. The Justice Department’s criminal division, which secured the guilty plea from the bank’s Japanese unit, also filed criminal charges against two former UBS traders.

Some of the world’s largest financial institutions remain caught in the cross hairs of the case. Deutsche Bank has set aside an undisclosed amount to cover potential penalties.

While foreign banks have received the brunt of the scrutiny to date, an American institution could be among the next to settle. Citigroup and JPMorgan Chase are under investigation.

In the $612 million Royal Bank of Scotland case, authorities levied the second-largest fine in the multiyear investigation into rate manipulation.

The fine included a $325 million penalty from the trading commission and a £87.5 million ($137 million) sanction from the Financial Services Authority, the British regulator, marking one of the largest financial penalties ever from British authorities. The Justice Department, for its part, imposed a $150 million fine as part of a deferred-prosecution agreement with R.B.S. In addition to wire fraud, the Justice Department cited the bank for its role in a “price-fixing conspiracy” that violated anti-trust laws.

R.B.S., based in Edinburgh, had aimed to avert the guilty plea for its Japanese subsidiary. But the Justice Department’s criminal division declined to back down, and the bank had little leverage to push back. If it had balked at a plea deal, the Justice Department could have moved to indict the subsidiary.

“Like with Barclays and UBS, the settlement with R.B.S. is much more than a slap on the wrist,” said Bart Chilton, a member of the trading commission who is critical of soft fines on big banks.

In the wake of the settlement, Royal Bank of Scotland is shaking up its management team as it moves to repair its bruised image. John Hourican, the firm’s investment banking chief, resigned on Wednesday, and agreed to forgo some of his past and current compensation totaling around $14.1 million. While Mr. Hourican was not implicated in the scandal, senior executives said he was taking blame for wrongdoing in his division.

“John is the right senior person to take responsibility for this,” the bank’s chairman, Philip Hampton, told reporters on Wednesday.

Royal Bank of Scotland, in which the government holds an 82 percent stake after providing a $73 billion bailout in 2008, also plans to claw back bonuses and other long-term compensation totaling $471 million to help pay for the rate-rigging penalty. The bank will will primarily use the figure to pay the fines from U.S. authorities, while penalties from the British regulator will be recycled back to the British government.

At a press conference in central London on Wednesday, Stephen Hester, the bank’s chief executive, condemned the illegal behavior of some of the firm’s employees, but acknowledged that Royal Bank of Scotland did not monitor its Libor submissions closely enough to catch the wrongdoing.

Mr. Hester, who has led the bank through a series of scandals and has been dogged by politicians’ demands for reductions in bonuses, admitted that the rate-rigging episode had placed the bank under a lot of strain.

“It is one of the most difficult moments over the entire period,” he said.

Mr. Hester, a former chief executive of the property developer British Land, has focused on paring back the bank’s operations. The C.E.O. has cut more than 30,000 job cuts since 2008, attempted to spin-off of the mergers and acquisitions unit and cut the size of its balance sheet by £600 billion since 2009. Mr. Hester also waved his $1.5 million bonus for 2011 after coming under pressure from British politicians.

In the Libor case, the wrongdoing at R.B.S. occurred on smaller scale than at other banks. The breach, authorities say, was limited to Libor submitters and traders who sought to bolster their bottom line. By comparison, top executives at Barclays knew the bank was lowballing its Libor rates to assuage concerns about its high borrowing costs.

R.B.S., which admitted that 21 of its employees altered the firm’s Libor submissions for financial gain on hundreds of occasions, either disciplined or fired most of the employees. The rest left before they were implicated. In the UBS case, the trading commission cited more than 2,000 instances of illegal acts involving dozens of employees.

Still, the government complaints against R.B.S. portray a permissive culture that allowed rate-rigging to persist for some four years.

The bank’s own records captured the scheme in striking detail, revealing how traders pressured other employees to submit certain Libor figures. Submitters and traders sat in earshot of each other on a trading desk in London, forming what authorities termed a “cozy ring.”

The bank eventually separated the employees, forcing them to communicate over e-mail and phone. A flurry of instant messages ensued, some more vulgar than others.

A trader noted in September 2009 that his requests for rates moved up and down, “like a whores drawers.” Another employee acknowledged that the Libor rate-setting process is “a cartel now.”

To get their way with employees who submitted Libor rates, traders promised “love” and affection. Others merely offered steak and sushi. One trader resorted to begging, invoking a plea of “pretty please.”

The collusion was not limited to inside Royal Bank of Scotland.

Between 2008 and 2009, the bank’s traders cooperated with other banks, including the Swiss financial giant UBS, and brokerage firms to manipulate Libor, according to regulatory filings. To ensure rate submissions at other banks benefited their own trading positions, some of Royal Bank of Scotland’s staff paid brokers more than a combined $300,000 in kickbacks over the time period to influence traders at other firms on their behalf.

When authorities started investigating, the traders adapted their tactics. One employee noted that federal authorities “are all over us.”

The concerns prompted a more covert approach. In September 2010, after the trading commission ordered an internal investigation at R.B.S., a derivatives trader urged a colleague who requested a higher Libor rate to send “no emails anymore.”

Two months later, a Libor submitter rebuffed an instant message request to manipulate rates. But then, the submitter spoke with the trader via telephone, explaining “we’re not allowed to have those conversations” over instant message.

Their call was recorded. The employees laughed, according to a transcript, and the submitter reassured the trader that he would fulfill the request: “Leave it with me, and uh, it won’t be a problem.”

The lobbying paid off. When employees submitted bogus rates, government authorities said, Libor was altered.

Lanny Breuer, the head of the Justice Department’s criminal division, called the actions a “stunning abuse of trust.”

He also warned of coming actions against other big banks. “Our message is clear: no financial institution is above the law.”

Article source: http://dealbook.nytimes.com/2013/02/06/as-unit-pleads-guilty-r-b-s-pays-612-million-over-rate-rigging/?partner=rss&emc=rss

DealBook: Amid Bank’s Legal Problems, Barclays Chief Gives Up Bonus

Antony Jenkins, chief of Barclays.Lucas Jackson/ReutersAntony Jenkins, chief of Barclays.

LONDON – Antony P. Jenkins, the new chief executive of Barclays, said on Friday that he would not accept a bonus as the British bank struggles to rebuild its reputation after a series of recent scandals.

The announcement comes as British regulators investigate new allegations that Barclays failed to properly disclose to shareholders a loan to a group of Qatari investors that gave the British bank a cash infusion during the financial crisis, according to a person with direct knowledge of the matter, who spoke on the condition of anonymity because he was not authorized to speak publicly.

Last year, the bank disclosed that British and American authorities were investigating the legality of the payments related to the $7.1 billion cash injection to Qatar Holding, the sovereign wealth fund.

Mr. Jenkins is dealing with a spate of legal headaches.

In June, Barclays agreed to pay a $450 million settlement with United States and British regulators over rate manipulation. The case forced a number of the bank’s top executives to resign, including the chief executive at the time, Robert. E. Diamond Jr.

The British firm has also set aside $3.2 billion to cover legal costs related to the inappropriately selling of insurance to consumers. British authorities recently told the bank that it must review the sale of certain interest-rate hedging products after 90 percent of a sample of the complex instruments were found to have been sold improperly. Analysts say the investigation may lead to millions of dollars of new legal costs.

In light of the controversy surrounding the bank, Mr. Jenkins said he did not want to be considered for a bonus that could have totaled up to $4.3 million, adding that many of the problems engulfing the bank were of its own making. The Barclays chief’s annual salary is $1.7 million.

“I think it only right that I bear an appropriate degree of accountability for those matters,” Mr. Jenkins said in a statement. “It would be wrong for me to receive a bonus for 2012.”

A spokesman for Barclays declined to comment about the investigation into potential wrongdoing connected to the loan to Qatari investors.

By forgoing his bonus, Mr. Jenkins contrasts with his predecessor. Mr. Diamond was in line for a $4.3 million bonus in deferred shares for 2011 despite criticism about his handling of the bank’s performance. Faced with mounting opposition, Mr. Diamond and Chris Lucas, the bank’s finance director, eventually agreed to receive only half of the 2011 deferred stock bonus if the British bank failed to reach a number of its financial targets.

Barclays, which will unveil a major overhaul of its operations when it reports earnings on Feb. 12, is expected to slash up to 2,000 jobs in its investment bank in an effort to reduce its exposure to risky trading activity, according to two people with direct knowledge of the matter.

As part of the changes, the British bank has hired Hector Sants, the former chief of the Financial Services Authority, the British regulator, as its new head of compliance.

Mr. Jenkins, who previously ran Barclays’ consumer banking business, told employees in January that they should leave the bank if they were not willing to help rebuild the firm’s reputation.

“My message to those people is simple,” Mr. Jenkins wrote in an internal note obtained by DealBook. “Barclays is not the place for you. The rules have changed.”


This post has been revised to reflect the following correction:

Correction: February 1, 2013

An earlier version of the article indicated that Barclays chief executive told employees earlier this month that they should leave the bank if they were not willing to help rebuild the firm’s reputation. He told them in January.

Article source: http://dealbook.nytimes.com/2013/02/01/amid-banks-legal-problems-barclays-c-e-o-gives-up-bonus/?partner=rss&emc=rss

DealBook: Regulators Propose Overhaul of Benchmark Interest Rate

LONDON – European regulators called for a major overhaul of a benchmark interest rate on Friday, but stopped short of demanding direct regulatory oversight in the wake of the rate-rigging scandal.

The recommended changes to the euro interbank offered rate, or Euribor, follow a $1.5 billion settlement by the Swiss bank UBS after some of its traders were found to have altered the rate as well as the London interbank offered rate, or Libor, for financial gain.

As part of the overhaul, the European Banking Authority and European Securities and Markets Authority want to increase the accuracy of the benchmark rate and increase oversight over how banks submit rates to Euribor, which underpins trillions of dollars of global financial products.

European authorities said the system did not require participating banks to have internal governance structures to manage potential conflicts of interest when submitting rates to Euribor. The rate-setting process also is not sufficiently assessed against real banking transactions, according to the report.

The recommendations include cutting in half the number of maturities included in the Euribor process, to seven rates. That will leave the focus only on benchmark rates that are supported by large number of financial transactions.

The change is in response to a drastic reduction of lending between global financial institutions during the financial crisis that reduced the accuracy of firms’ rate submissions. The fall in actual transactions also led to a number of traders and senior managers at global banks to manipulate the rate, according to regulatory filings.

On Friday, European authorities did not demand direct regulatory control over Euribor, which continues to be overseen by the European Banking Federation, a trade body. A recent review by British authorities into Libor did recommend regulatory oversight of that rate, as well as criminal charges against individuals who try to alter the rate for financial gain.

Despite widespread calls for authorities to take control over global benchmark rates, the European regulatory bodies do not have the legal responsibilities to recommend those changes, according to a European Securities and Markets Authority spokesman.

The European Commission is considering changes to how global benchmark rates are set, and is expected to draft legislation later this year.

Other recommendations outlined by European authorities on Friday included regular audits by the European Banking Federation of the rate-setting process, as well as increasing the independence of the board that oversees Euribor. The trade body said it welcomed many of the changes outlined by the European banking and financial market regulators, adding that it was open to regulators participating in the supervision of Euribor.

Greater scrutiny of the benchmark rate is already having an effect.

As more banks continue to be embroiled in the rate-rigging scandal, a number of financial institutions, including Rabobank Groep of Holland and Raiffeisen Bank International of Austria, have left the panel that sets Euribor. Euribor-EBF, the group that oversees the rate, has said other banks may also pull out of the rate-setting process.

Article source: http://dealbook.nytimes.com/2013/01/11/regulators-propose-overhaul-of-euribor-interest-rate/?partner=rss&emc=rss

DealBook: UBS Pays $1.5 Billion Over Rate Rigging

UBS agreed to record fines to settle a rate-rigging case.Michael Buholzer/ReutersUBS agreed to record fines to settle a rate-rigging case.

UBS, the Swiss banking giant, announced a record settlement with global authorities on Wednesday, agreeing to a combined $1.5 billion in fines for its role in a multiyear scheme to manipulate interest rates.

In a sign that officials are increasingly taking a hard line against financial wrongdoing, the Justice Department also secured a guilty plea from the bank’s Japanese subsidiary, sending a warning shot to other big banks suspected of rate rigging. The UBS subsidiary, which agreed to plead to a single count of wire fraud, is the first unit of a big bank to agree to criminal charges in more than a decade.

The cash penalties represented the largest fines to date related to the rate-rigging inquiry. The fine is also one of the biggest sanctions that American and British authorities have ever levied against a financial institution, falling just short of the $1.9 billion payout that HSBC made last week over money laundering accusations.

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The severity of the UBS penalties, authorities said, reflected the extent of the problems. The government complaints laid bare a scheme that spanned from 2005 to 2010, describing how the bank reported false rates to squeeze out extra profits and deflect concerns about its health during the financial crisis.

“The findings we have set out in our notice today do not make for pretty reading,” Tracey McDermott, the enforcement director for the Financial Services Authority of Britain, said in a statement. “The integrity of benchmarks,” she said, “are of fundamental importance to both U.K. and international financial markets. UBS traders and managers ignored this.”

The UBS case reflects a pattern of abuse that authorities have uncovered as part of a multi-year investigation into rate-rigging. The inquiry, which has ensnared more than a dozen big banks, is focused on key benchmarks like the London interbank offered rate, or Libor. Such rates are used to help determine the borrowing rates for trillions of dollars of financial products like corporate loans, mortgages and credit cards.

Libor Explained

Sergio P. Ermotti, chief of UBS.Walter Bieri/KEYSTONE, via Associated PressSergio P. Ermotti, chief of UBS.Tracey McDermott, the enforcement director for the Financial Services Authority of Britain.Financial Services AuthorityTracey McDermott, the enforcement director for the Financial Services Authority of Britain.

In the UBS matter, the wrongdoing occurred largely within the Japanese unit, where traders colluded with other banks and brokerage firms to tinker with Yen denominated Libor and bolster their returns. During the 2008 financial crisis, UBS managers also “inappropriately gave guidance to those employees charged with submitting interest rates, the purpose being to positively influence the perception of UBS’s creditworthiness,” according to authorities.

In a series of colorful e-mails and phone calls, traders tried to influence the rate-setting process. “I need you to keep it as low as possible,” one UBS trader said to an employee at another brokerage firm in September 2008, according to the complaint filed by the Financial Services Authority. “If you do that,” the trader promised to pay “whatever you want. I’m a man of my word.”

As the employees carried out the alleged manipulation, they also celebrated the efforts, with one trader referring to a partner in the scheme as “superman.” “Be a hero today,” he urged, according the complaint by regulators.

The British and Swiss authorities released their complaints on Wednesday before the bank’s shares began trading in Switzerland. American authorities are expected to release their own complaints later Wednesday in Washington.

In a statement, UBS highlighted its cooperation with the investigation. The firm previously stated that it made provisions of 897 million Swiss francs ($975 million) to cover potential legal and regulatory fines.

“We discovered behavior of certain employees that is unacceptable,” the chief executive of UBS, Sergio P. Ermotti, said in the statement. “We deeply regret this inappropriate and unethical behavior. No amount of profit is more important than the reputation of this firm, and we are committed to doing business with integrity.”

The UBS case provides a lens to view broader problems in the rate-setting process, which affects how consumers and companies borrow money around the world. In June, authorities scored their first Libor settlement, securing a $450 million payout from Barclays, the big British bank.

The UBS case — the product of cross-border collaboration among regulators and federal prosecutors – is more than triple the earlier fine.

The Commodity Futures Trading Commission and the Justice Department leveled about $1.2 billion in combined fines. The Financial Services Authority of Britain fined the bank $260 million. The Swiss Financial Market Supervisory Authority, which does not have the power to fine, recovered $65 million in the bank’s supposed ill-gotten gains.

The Justice Department’s criminal division, which arranged the guilty plea with the Japanese subsidiary, also struck a non-prosecution agreement with the parent company. The exact total of the penalties was unclear, because the department has not yet released its settlement documents.

The Justice Department’s case is also expected to take aim at some of the bank’s traders, including 33-year-old Thomas Hayes. The Justice Department plans to announce charges against Mr. Hayes, the former UBS and Citigroup trader, who featured prominently in the investigation, according to people with knowledge of the matter. He was arrested in London last week and later released on bail. Other UBS employees have been suspended or fired following an internal investigation.

The fallout from the UBS case is expected to ratchet up the pressure on some of the world’s largest financial institutions and spur settlement talks across the banking industry.

The Royal Bank of Scotland has said it expects to pay fines before its next earnings statement in February, while Deutsche Bank has set aside an undisclosed amount to cover potential penalties. Some American institutions, including Citigroup and JPMorgan Chase, also remain in regulators’ crosshairs.

The UBS case has exposed the systemic problems with the rate-setting process. Over a 6-year period, UBS traders targeted the major currencies that form the Libor system, including the U.S. dollar denominated rate. The bank was also cited for attempting to manipulate other benchmarks like the Euro Interbank Offered Rate, or Euribor, and the Tokyo Interbank Offered Rate, or Tibor.

Much of the activity took place in the bank’s Japanese unit. Authorities said four UBS traders colluded to manipulate submissions to Yen Libor. The individuals made more than 1,900 requests to brokers and other banks to alter the rate, according to regulatory filings. As part of their efforts, UBS employees made quarterly payments of £15,000 ($24,000) to outside brokers involved in the rate-rigging for at least 18 months for their help, the complaint said.

To avoid arousing suspicion, UBS employees routinely made small changes to submissions, the complaint detailed. The individuals, who communicated with colleagues about the rate-setting through emails and instant messages, also altered rate submissions to benefit traders at other banks.

The Japanese unit’s guilty plea for wire fraud follows frantic last-minute negotiations last week between senior UBS officials and American authorities. The actions detailed in the complaint emboldened the Justice Department to seek the guilty plea from the Japanese unit. By forcing the plea from the firm’s Japanese subsidiary, federal authorities sent a clear message about the level of wrongdoing, but stopped far short of shutting UBS out of the American markets.

Still, the steep sanctions come as a surprise, given the bank’s cooperation with investigators.

Since first announcing that it was the subject of Libor investigations, the Swiss bank has eagerly worked with authorities in a bid for leniency. UBS, for example, had received conditional immunity from the Justice Department’s antitrust unit, a deal that did not apply to the Justice Department’s criminal division.

The case presents the latest setback for UBS.

The Swiss bank already agreed to a $780 million fine in 2009 with American authorities to settle charges that it helped American clients avoid tax. The firm also announced a $2.3 billion loss last year related to illegal trading activity by a former employee, Kweku M. Adoboli. Mr. Adoboli subsequently was sentenced to seven years, and British authorities fined UBS $47.5 million over the scandal.

UBS said it expected to report a net loss of up to $2.7 billion in the fourth quarter of the year because of the costs related to Libor and other legal matters. The figure includes around $2.3 billion of provisions of legal and regulatory costs, as well as $548 million in restructuring charges.

In the wake of the Libor scandal, UBS has been forced to beef up its compliance and rate-setting procedures, according to the Swiss regulator. The bank has also fired individuals connected to the rate-rigging.

“We are pleased that the authorities gave us credit for the important and positive changes we have already made,” the chairman of UBS, Axel Weber, said in a statement. “I have zero tolerance for inappropriate and unethical behavior of any of our staff.”


This post has been revised to reflect the following correction:

Correction: December 19, 2012

An earlier version of this post misstated a loss announced by UBS related to illegal trading activity by a former employee, Kweku M. Adoboli. It was $2.3 billion, not $2.3 million.

Article source: http://dealbook.nytimes.com/2012/12/19/as-unit-pleads-guilty-ubs-pays-1-5-billion-in-fines-over-rate-rigging/?partner=rss&emc=rss

DealBook: As Unit Pleads Guilty, UBS Pays $1.5 Billion Over Rate Rigging

UBS, the Swiss banking giant, announced a record settlement with global authorities on Wednesday, agreeing to a combined $1.5 billion in fines for its role in a multiyear scheme to manipulate interest rates.

In a sign that officials are increasingly taking a hard line against financial wrongdoing, the Justice Department also secured a guilty plea from the bank’s Japanese subsidiary, sending a warning shot to other big banks suspected of rate rigging. The UBS subsidiary, which agreed to plead to a single count of wire fraud, is the first unit of a big bank to agree to criminal charges in more than a decade.

The cash penalties represented the largest fines to date related to the rate-rigging inquiry. The fine is also one of the biggest sanctions that American and British authorities have ever levied against a financial institution, falling just short of the $1.9 billion payout that HSBC made last week over money laundering accusations.

The severity of the UBS penalties, authorities said, reflected the extent of the problems. The government complaints laid bare a scheme that spanned from 2005 to 2010, describing how the bank reported false rates to squeeze out extra profits and deflect concerns about its health during the financial crisis.

“The findings we have set out in our notice today do not make for pretty reading,” Tracey McDermott, the enforcement director for the Financial Services Authority of Britain, said in a statement. “The integrity of benchmarks,” she said, “are of fundamental importance to both U.K. and international financial markets. UBS traders and managers ignored this.”

The UBS case reflects a pattern of abuse that authorities have uncovered as part of a multi-year investigation into rate-rigging. The inquiry, which has ensnared more than a dozen big banks, is focused on key benchmarks like the London interbank offered rate, or Libor. Such rates are used to help determine the borrowing rates for trillions of dollars of financial products like corporate loans, mortgages and credit cards.

In the UBS matter, the wrongdoing occurred largely within the Japanese unit, where traders colluded with other banks and brokerage firms to tinker with Yen denominated Libor and bolster their returns. During the 2008 financial crisis, UBS managers also “inappropriately gave guidance to those employees charged with submitting interest rates, the purpose being to positively influence the perception of UBS’s creditworthiness,” according to authorities.

In a series of colorful e-mails and phone calls, traders tried to influence the rate-setting process. “I need you to keep it as low as possible,” one UBS trader said to an employee at another brokerage firm in September 2008, according to the complaint filed by the Financial Services Authority. “If you do that,” the trader promised to pay “whatever you want. I’m a man of my word.”

As the employees carried out the alleged manipulation, they also celebrated the efforts, with one trader referring to a partner in the scheme as “superman.” “Be a hero today,” he urged, according the complaint by regulators.

The British and Swiss authorities released their complaints on Wednesday before the bank’s shares began trading in Switzerland. American authorities are expected to release their own complaints later Wednesday in Washington.

In a statement, UBS highlighted its cooperation with the investigation. The firm previously stated that it made provisions of 897 million Swiss francs ($975 million) to cover potential legal and regulatory fines.

“We discovered behavior of certain employees that is unacceptable,” the chief executive of UBS, Sergio P. Ermotti, said in the statement. “We deeply regret this inappropriate and unethical behavior. No amount of profit is more important than the reputation of this firm, and we are committed to doing business with integrity.”

The UBS case provides a lens to view broader problems in the rate-setting process, which affects how consumers and companies borrow money around the world. In June, authorities scored their first Libor settlement, securing a
$450 million payout from Barclays, the big British bank.

The UBS case — the product of cross-border collaboration among regulators and federal prosecutors – is more than triple the earlier fine.

The Commodity Futures Trading Commission and the Justice Department leveled about $1.2 billion in combined fines. The Financial Services Authority of Britain fined the bank $260 million. The Swiss Financial Market Supervisory Authority, which does not have the power to fine, recovered $65 million in the bank’s supposed ill-gotten gains.

The Justice Department’s criminal division, which arranged the guilty plea with the Japanese subsidiary, also struck a non-prosecution agreement with the parent company. The exact total of the penalties was unclear, because the department has not yet released its settlement documents.

The Justice Department’s case is also expected to take aim at some of the bank’s traders, including 33-year-old Thomas Hayes. The Justice Department plans to announce charges against Mr. Hayes, the former UBS and Citigroup trader, who featured prominently in the investigation, according to people with knowledge of the matter. He was arrested in London last week and later released on bail. Other UBS employees have been suspended or fired following an internal investigation.

The fallout from the UBS case is expected to ratchet up the pressure on some of the world’s largest financial institutions and spur settlement talks across the banking industry.

The Royal Bank of Scotland has said it expects to pay fines before its next earnings statement in February, while Deutsche Bank has set aside an undisclosed amount to cover potential penalties. Some American institutions, including Citigroup and JPMorgan Chase, also remain in regulators’ crosshairs.

Article source: http://dealbook.nytimes.com/2012/12/19/as-unit-pleads-guilty-ubs-pays-1-5-billion-in-fines-over-rate-rigging/?partner=rss&emc=rss

DealBook: UBS Expected to Be Fined in Rogue Trader Scandal

Kweku Adoboli arriving at court in London on Tuesday. He was sentenced to seven years in jail.Stefan Wermuth/ReutersKweku Adoboli arriving at court in London on Tuesday. He was sentenced to seven years in jail.

LONDON — UBS is expected to face a multimillion-dollar fine in connection with the $2.3 billion trading loss caused by a former trader, according to two people with direct knowledge of the matter.

The potential fine by British authorities against the Swiss bank may be £30 million to £50 million, or $47 million to $80 million, and could be announced as early as next week, according to one person, who spoke on the condition of anonymity.

On Tuesday, the former UBS trader Kweku M. Adoboli received a seven-year jail sentence on two counts of fraud in connection with the loss for abusing his position at the Swiss bank from 2008 to 2011. Mr. Adoboli was found not guilty on another four counts of false accounting.

The Financial Services Authority, the British regulator, and the Swiss Financial Market Supervisory Authority opened a joint inquiry last year into the enormous trading loss. On behalf of the regulators, the accounting firm KPMG conducted a $20 million investigation into the internal failures at the Swiss bank that led to Mr. Adoboli’s trading loss.

The potential penalty could be one of the largest fines levied by the Financial Services Authority of Britain. The regulator fined the British bank Barclays £59.5 million this year in connection with the manipulation of the London interbank offered rate, or Libor. JPMorgan Chase was also penalized £33.3 million in 2010 for failing to protect British clients’ money from 2002 to 2009.

The Swiss regulator, which cannot levy fines, is expected to announce its own recommendations. Proposals could include stricter supervision for UBS in the near term.

UBS has dealt with a series of scandals since the financial crisis.

In 2009, the Swiss firm paid $780 million to settle allegations by American authorities that it helped wealthy clients evade United States taxes. The bank paid an £8 million fine to British regulators that year after an employee in the firm’s London-based wealth management unit carried out unauthorized trades with clients’ money. UBS also was forced to write down credit investments worth around $50 billion from 2007 to 2008.

In a bid to reduce its exposure to risky trading, the Swiss bank announced plans last month to eliminate up to 10,000 jobs in its investment banking unit. Last year, UBS announced a separate batch of 3,500 job cuts.

Sergio P. Ermotti, the bank’s chief executive, is refocusing the firm’s resources on its profitable wealth management unit, while responding to stricter regulatory capital requirements that has reduced the profitability of certain trading areas.

Up to 45 percent of the newly announced layoffs, or 4,500 people, are expected to be in London. A further 2,500 job losses will come from its Swiss operations, while the remaining layoffs would be borne by UBS’s division in the United States.

Shares in UBS rose less than 1 percent in morning trading in Zurich on Friday.

Spokesmen for UBS and the Financial Services Authority declined to comment.

Article source: http://dealbook.nytimes.com/2012/11/23/ubs-said-to-face-fine-in-rogue-trader-scandal/?partner=rss&emc=rss

DealBook: BlackRock Fined $15.2 Million by British Regulator

The headquarters of BlackRock in Manhattan.Scott Eells/Bloomberg NewsThe headquarters of BlackRock in Manhattan.

LONDON – British authorities have fined the giant money manager BlackRock £9.5 million for failing to protect some of its clients’ money.

The fine, the equivalent of $15.2 million, is the second-largest ever levied by the Financial Services Authority in such a case.

JPMorgan Chase was fined £33.3 million in 2010 for not separating client money from the bank’s own accounts.

The actions against BlackRock relate to failures by the firm to obtain letters from third-party banks that held money belonging to BlackRock’s clients.

Under British law, firms must receive written assurances from other financial institutions that client money is clearly identifiable and protected if banks go bankrupt.

The error occurred after BlackRock acquired BIM, which previously was named Merrill Lynch Investment Managers, in 2006. None of BlackRock’s clients lost money because of the failure, the authority said.

“This is not the first time we have seen the impact on client money overlooked as part of a reorganization,” Tracey McDermott, director of enforcement and financial crime at the Financial Services Authority, said in a statement. “The fine imposed today should remind all firms of the critical importance we place on ensuring proper protection of client money at all times.”

BlackRock, which cooperated with the Financial Services Authority, apologized for the error, adding that it had taken steps to improve protections for client money.

“We regret this instance where our U.K. procedures regarding money market deposits for a number of our clients were not consistent with applicable standards,” the company said in a statement.

Article source: http://dealbook.nytimes.com/2012/09/11/british-regulator-fines-blackrock-15-2-million/?partner=rss&emc=rss

DealBook: Barclays’ Profit Falls as New Regulatory Problems Emerge

The letter B is hoisted up the side of Barclays' headquarters in London.Simon Newman/ReutersThe letter “B” is hoisted up the side of Barclays‘ headquarters in London.

LONDON — The problems continue to mount for Barclays, as the British bank disclosed that it was facing lawsuits related to a rate-rigging scandal and that regulators were investigating the company’s financial director on a different matter.

The bank’s legal and regulatory burdens have been a continued source of financial pain for Barclays.

On Friday, Barclays reported that net profit dropped 76 percent to $752 million during the first six months of the year after taking an accounting charge on its debt and a charge for inappropriately selling complex financial products to small businesses. Last month, Barclays and other banks settled with British regulators over those sales, of interest rate swaps.

On Friday, Barclays said that the Financial Services Authority, the British regulator, was looking into the actions of some current and former employees, including the finance director, Chris Lucas, over the disclosure of fees related to the bank’s capital-raising efforts in 2008. The issues revolve around agreements with the Qatar Investment Authority and the Sumitomo Mitsui Banking Corporation of Japan, according to regulatory filings.

After the collapse of Lehman Brothers in 2008, the British bank tapped Middle Eastern investors for a combined £11.8 billion, or $18.6 billion, in two rounds of capital raising. Existing shareholders have voiced concerns that their rights were overlooked when Barclays turned to outside investors for a fresh injection of capital.

“Barclays considers that it satisfied its disclosure obligations and confirms that it will cooperate fully with the F.S.A.’s investigation,” the bank said in a statement.

Last month, Barclays announced a $450 million settlement with American and British authorities over the manipulation of benchmark rates, including the London interbank offered rate, or Libor. On Friday, Barclays disclosed that it was facing class-action lawsuits in the United States related to such issues. One of the lawsuits also cites unnamed current and former members of the bank’s board as defendants, according to a statement from the bank.

Barclays said it was “not practical” to estimate the costs related to the legal proceedings. Morgan Stanley analysts have said global banks may have to pay more than a combined $20 billion in penalties and fines related to the manipulation of Libor.

“We are sorry for the issues that have emerged over recent weeks and recognize that we have disappointed our customers and shareholders,” Barclays’ chairman, Marcus Agius, who will step down, said in a statement.

As it deals with the fallout, Barclays must also remake its management team. As the rate manipulation scandal unfolded, Robert E. Diamond Jr., the company’s former chief executive, and Jerry del Missier, the former chief operating officer, both resigned. Mr. Agius said in a conference call that the firm would appoint a new chairman before selecting its next chief executive.

The bank is also taking a close look at its actions. Barclays has appointed Anthony Salz, vice chairman of the advisory firm Rothschild, to conduct a review into the British bank’s business practices. Some current and former Barclays employees may still face criminal charges related to the rate-rigging scandal.

Despite the bad news, investors found a reason to be upbeat. By the close of trading in London, the bank’s shares had jumped nearly 9 percent.

Without the accounting charge and other one-time costs, Barclays’ net profit in the first half of the year rose 9 percent, to £3.07 billion, compared with £2.8 billion a year earlier. The earnings, which beat analysts’ estimates, were driven by an improved performance in the bank’s retail and corporate banking divisions.

Barclays’ investment banking unit, however, continued to get hit by the European debt crisis. Other global rivals, like Morgan Stanley and Goldman Sachs, have faced weakness in their investment banking activity, but analysts said that Barclays had done better than most to maintain its trading income.

The bank reported a £1 billion pretax profit in its investment banking unit in the three months through June 30, a 2.5 percent increase over the previous year. Barclays does not report net income for its separate business units.

“Despite the more recent regulatory assault, this underpins the belief that, in challenging conditions, Barclays Capital should continue to consolidate market share,” Ian Gordon, a banking analyst at Investec in London, said in a note to investors.

The British bank said it had reduced its exposure to the debt of Southern European countries by 22 percent, to £5.6 billion, during the first six months of the year. The bank’s core Tier 1 ratio, a measure of ability to weather financial shocks, fell slightly to 10.9 percent.

“We continue to be cautious about the environment in which we operate and will maintain the group’s strong capital, leverage and liquidity positions,” Mr. Lucas of Barclays said in a statement.

Article source: http://dealbook.nytimes.com/2012/07/27/barclays-profit-falls-amid-rate-rigging-scandal/?partner=rss&emc=rss

DealBook: Parliament Questions Marcus Agius About Culture at Barclays

Marcus Agius, Barclays' chairman, after testifying to lawmakers. He was asked mostly about the actions of Robert Diamond, Barclays' former chief.Jason Alden/Bloomberg NewsMarcus Agius, Barclays‘ chairman, after testifying to lawmakers. He was asked mostly about the actions of Robert Diamond, Barclays’ former chief.

LONDON — During his tenure as Barclays chief executive, Robert E. Diamond Jr. spoke passionately about creating a strong culture of integrity and trust, a common philosophy that would breed success at the big British Bank. In a speech last year, he emphasized that the “evidence of culture is how people behave when no one is watching.”

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But now Mr. Diamond, who stepped down last week, faces criticism about his leadership as Barclays deals with fallout from a scandal involving interest rate manipulation.

On Tuesday, Barclays released new documents that indicate British regulators had raised questions about Mr. Diamond’s management style, with concerns dating to his appointment to the top spot in late 2010. The scrutiny of Mr. Diamond came months — and in one case, years — before the bank came under fire for trying to manipulate key interest rates.

The revelations, during a tense parliamentary committee hearing in Britain, could put added pressure on the bank and Mr. Diamond.

Marcus Agius, testifying to lawmakers in London, has agreed to resign as Barclays' chairman.ReutersMarcus Agius, testifying to lawmakers in London, has agreed to resign as Barclays’ chairman.

“The culture at Barclays came from the top,” said Andrew Tyrie, a member of Parliament who heads the committee. “It came from top executives.”

In late June, Barclays agreed to pay $450 million to settle accusations by American and British authorities that it reported false rates in an effort to improve profits and make its financial position look stronger. The case, the first major action stemming from a global investigation into big banks, focuses on a key benchmark known as the London interbank offered rate, or Libor. Such rates are used to help determine the borrowing costs for credit cards, mortgages and other types of debt.

To help quell the anger over the case, Mr. Diamond agreed on Tuesday to forgo up to $31 million in stock bonuses that he was set to receive. Last week, the bank’s chairman, Marcus Agius, said he also would resign, along with one of Mr. Diamond’s top deputies, Jerry del Missier.

“I am sorry, angry and disappointed,” Mr. Diamond told the parliamentary committee last week.

On Tuesday, British politicians directed their ire at Mr. Agius, who testified at the hearing for more than two hours. Lawmakers focused mainly on the actions of Mr. Diamond, wondering what went wrong inside the bank.

The committee, in part, addressed the newly released documents that show British regulators’ earlier concerns about Mr. Diamond.

In a letter to Mr. Agius in late 2010, Hector Sants, the chief executive of Britain’s Financial Services Authority, pushed for Mr. Diamond, who had been recently tapped as chief executive, to have an “increased level of engagement” with authorities. He added that regulators expected the incoming Barclays chief, who took over in early 2011, to have a “close, open and transparent relationship” with them.

Mr. Sants also cautioned about the incoming chief’s chumminess with top Barclays deputies. Mr. Diamond helped build Barclays’ investment bank into a global leader, and regulators wanted to ensure that he would exercise sufficient “clarity in oversight” over two close colleagues, Mr. del Missier and Rich Ricci, who replaced Mr. Diamond as the co-heads of the unit.

Questions about the bank’s culture persisted.

In April, Adair Turner, chairman of the Financial Services Authority, wrote a letter to Mr. Agius, addressing what the regulator perceived as overly aggressive practices at the bank. He pointed to Barclays’ efforts to avoid paying around $774 million in corporate taxes and some of the bank’s accounting methods.

“Barclays often seems to be seeking to gain advantage through the use of complex structures, or through regulatory approaches which are at the aggressive end of interpretation of the relevant rules and regulations,” Mr. Turner wrote.

In his testimony on Tuesday, Mr. Agius said that Mr. Turner’s letter showed the bank’s “strained” relationship with the Financial Services Authority. “What that letter is saying is that we overdid it,” Mr. Agius said.

The correspondence between Barclays and British regulators appears to contradict evidence that Mr. Diamond gave last week to the same parliamentary committee.

In his testimony, Mr. Diamond indicated that the bank maintained a good relationship with the British regulator. He also said that he did not recall that the regulator had raised concerns about the bank’s activities or its internal culture.

“I knew nothing about it at the time that I was appointed,” Mr. Diamond told the parliamentary committee last week.

British politicians repeatedly asked Mr. Agius on Tuesday whether Mr. Diamond had been completely forthcoming during his testimony.

“Would you say that Mr. Diamond lied to this committee?” David Ruffley, a member of Parliament, asked Mr. Agius.

“I can’t comment on Mr. Diamond’s testimony,” the Barclays chairman said.

In light of the concerns about Mr. Diamond’s testimony, Mr. Diamond might be recalled to give further evidence next week. Senior officials from the Financial Services Authority also are expected to testify.

In his testimony, Mr. Agius gave more detail about the inner workings of the British bank. The Barclays chairman, who said he was first told about the investigations into the bank’s Libor activities in April 2010, said the bank’s board did not make decisions involving the setting of the Libor. Instead, issues related to the rate were left to lower-level executives, he told lawmakers.

When asked why senior managers did not question decisions to report artificially low rates, Mr. Agius said that the bank handled many difficult situations after the collapse of Lehman Brothers in 2008.

“I think it reflects the extraordinary times,” he said.

At the beginning of his testimony, Mr. Agius said that Mr. Diamond would give up his deferred stock bonuses.

Still, Mr. Diamond will receive around $3.1 million, including one year’s pay and a cash payment. The agreement is roughly double what he is contractually owed.
“We want to retain such good will as we can with him,” Mr. Agius said.

Mr. Agius, who became Barclays’ chairman in 2007, was asked to detail the circumstances of Mr. Diamond’s resignation last week.

He told the committee that in early July he and Michael Rake, one of the bank’s independent directors, talked to Mervyn A. King, the governor of the Bank of England, about the rate-manipulation scandal. During the conversation, Mr. King indicated that Mr. Diamond no longer had the support of the Financial Services Authority, according to Mr. Agius’s testimony. But Mr. King said Barclays’ board would have to make the final decision about Mr. Diamond’s future.

After the conversation with Mr. King, Mr. Agius held a conference call with the bank’s nonexecutive directors, who decided to ask Mr. Diamond to resign. After calling Mr. King to inform him of the board’s decision, the chairman visited Mr. Diamond at his house.

“I left confident that he would resign,” Mr. Agius said.

Article source: http://dealbook.nytimes.com/2012/07/10/parliament-questions-culture-at-barclays/?partner=rss&emc=rss

DealBook: Banking Official Faces Panel in Barclays Scandal

Paul Tucker, deputy governor of the Bank of England.Chris Ratcliffe/Bloomberg NewsPaul Tucker, deputy governor of the Bank of England.

LONDON — The scandal over the manipulation of global interest rates until now has mostly put bankers in the spotlight. But the focus on Monday will turn to the regulators, both on what they did and what they did not do.

Paul Tucker, a deputy governor at the Bank of England, will give evidence on whether senior government officials put pressure on Barclays to lower its submissions to the London interbank offered rate, or Libor. Barclays agreed in late June to pay some $450 million to settle accusations from United States and British authorities that its traders and senior executives had manipulated the rate, which underpins trillions of dollars of corporate loans, home mortgages and derivatives around the world.

Mr. Tucker’s testimony could put him at loggerheads with Robert E. Diamond Jr., the former chief executive of Barclays, who told the same committee last week that the Bank of England, as well as the Financial Services Authority of Britain and the Federal Reserve Bank of New York, had repeatedly been informed about the issue, but had not moved to stop it.

After resigning last Tuesday, Mr. Diamond released an e-mail last week that indicated that Mr. Tucker had questioned why the bank was submitting rates consistently higher than rivals, a sign of relatively poor health.

How Mr. Tucker responds promises to be a pivotal in the central banker’s career. The 54-year-old Cambridge graduate is a leading candidate to replace Mervyn King next year in the top job as the governor of the Bank of England, one of the world’s most important central banks.

“The focus will be on whether his recollection tallies with what Bob Diamond told us,” said Pat McFadden, a Labour member of Parliament who sits on the committee overseeing Mr. Tucker’s testimony. “We want to know if anyone at the Bank of England or in other government departments asked Barclays to lower its Libor submissions.”

Through a spokeswoman, Mr. Tucker declined to comment.

The intense scrutiny confronting Mr. Tucker follows a career spanning more than three decades at the Bank of England. After brief stints in the 1980s at the British bank Baring Brothers and with the Hong Kong government, he rose through the ranks to become the British central bank’s deputy governor in charge of financial stability in 2009.

Mr. Tucker also is a leading figure in global efforts to overhaul financial regulation. Along with his Bank of England duties, he currently holds senior positions at both the Financial Stability Board and the Global Economy Meeting, whose memberships comprise officials from the world’s leading central banks.

Unlike some other regulators, Mr. Tucker is known for his practical understanding of both the financial markets and the current effort to provide extra financing support to prop up British banks, according to several of his current and former colleagues, who spoke on the condition of anonymity because of the importance of his testimony on Monday.

“He would be a good man for the top job” at the Bank of England, said one of the people. “He understands banks and is a naturally bright guy who gets how the financial system works.”

Mr. Tucker’s reputation, however, has been tarnished by the Libor scandal. The British government will start its search for a new central bank chief toward the end of the year.

Analysts say other potential candidates, like Gus O’Donnell, a recently retired high-ranking British civil servant, may benefit from Mr. Tucker’s involvement in the Barclays’ rate manipulation affair. “Intellectually, he’s not up to the job,” said David Blanchflower, a British economist who sat on the Bank of England’s monetary policy committee with Mr. Tucker from 2006 to 2009. “Every single call since 2007, he has got wrong.”

Mr. Blanchflower points to a Bank of England meeting in November 2007 led by Mr. Tucker when a number of officials raised concerns that Libor submissions were lower than market rates. “He was told about the problem, but didn’t do anything about it,” Mr. Blanchflower added.

A lot now depends on Mr. Tucker’s testimony. In a highly unusual step for a British government official, the central bank’s deputy governor released a statement last week, requesting to give evidence to the British parliamentary committee “as soon as possible.”

Robert E. Diamond Jr., who resigned as chief of Barclays last week, said the Bank of England knew of the rate discrepancies.Lefteris Pitarakis/Associated PressRobert E. Diamond Jr., who resigned as chief of Barclays last week, said the Bank of England knew of the rate discrepancies.

His testimony is expected to center primarily on a phone call with Mr. Diamond in late October 2008. Last week, the former Barclays chief told the parliamentary committee that Mr. Tucker had expressed concerns from senior British politicians that Barclays’ Libor submissions were higher than those of rivals.

Mr. Diamond then e-mailed Jerry del Missier, a top deputy, about the conversation, saying that Mr. Tucker had stated that it “did not always need to be the case that we appeared as high as we have recently,” according to documents released by Barclays.

Mr. del Missier, who also resigned last week because of the rate manipulation scandal, then directed employees to keep the submitted rates lower, or at least in line with rivals. His actions, some regulators say, were a result of a “miscommunication,” rather than instructions from Mr. Tucker.

Mr. Diamond has said that he did not tell senior executives to lower the bank’s Libor rate submissions. The former Barclays chief also said that he had been told only last month about the activity, which occurred amid the financial crisis.

“I was unaware that Jerry had the impression that Tucker’s phone call was taken as an instruction” to alter the rate, he told the committee.

The involvement of senior British officials has appeared to deflect some of the attention of the scandal away from Barclays. Some of the firm’s traders also had been altering Libor to benefit their own trading positions as far back as 2005.

Yet British politicians have expressed skepticism that the Bank of England actually put pressure on Barclays to change its Libor rates. Some contend that the conversations were part of officials’ ongoing checks on one of the country’s largest financial institutions at the height of a financial crisis.

“I doubt the Bank of England was leaning on Barclays to lower its Libor submissions,” Mr. McFadden, the British politician, said. “In the end, Barclays already had been doing that for years.”

Article source: http://dealbook.nytimes.com/2012/07/08/banking-official-faces-panel-in-barclays-scandal/?partner=rss&emc=rss