Swiss megabanker UBS (NYSE:UBS) settled charges of manipulating the LIBOR rate this week, agreeing to pay a total of $1.5 billion in fines to regulators in the U.S., U.K., and Switzerland. By way of comparison, that's more than three times the $450 million that Barclays (NYSE:BCS) had to pay to settle related charges back in June, but somewhat less than the $1.9 billion HSBC (NYSE:HSBC) had to cough up last week, after it got caught laundering money for Mexican drug cartels.
So ... does UBS's punishment fit the crime? You be the judge. What follows are a few choice quotes pulled from the U.K.'s Financial Services Authority report on UBS, which laid out the company's offenses. In them, various UBS traders, managers, and counterparties were caught on record asking for or agreeing to manipulate LIBOR rates to benefit their counterparties. All quotes are taken verbatim from the report -- grammatical and spelling mistakes and sloppy capitalizations included -- save only for the expletives, which we have excised for the benefit of our more sensitive readers:
You scratch my back ...
"if you keep 6s [i.e., the six-month JPY LIBOR rate] unchanged today ... I will [expletive] 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. ... I'm a man of my word."
Broker A said "we have to be careful on putting too much pressure on mate I ask all the time for yu [sic] guys as you know." Manager E replied "yeah I know you do it is much appreciated."
"We really need some co-operation on the yen libors from those who input ... as someone says we need to be in the middle of the pack. Is it possible we can get an exception for Yen?"
Panel Bank 1 submitter: "Alright, well make sure he [Trader A] knows."
Broker B: "Yeah, he will know mate. Definitely, definitely, definitely."
Panel Bank 1 submitter: "You know, scratch my back yeah an all."
Broker B: "Yeah oh definitely, yeah, play the rules."
The rules don't apply to us
"3m libor is too high cause I have kept it artificially high."
"offering ... some cheap 3s all morning and 1 shouted them down ... we were offering them at 50 mate ... that wasn't even true."
"standing order, sir."
Trader A: "mate did you manage to spk to your cash boys?"
External Trader C: "yes u owe me they are going to 65 and 71."
"Anytime i can return the favour let me know as the guys here are pretty accommodating to me."
Rule No. 1: Don't get caught
"It is highly advisable to err on the low side with fixings for the time being to protect our franchise in these sensitive markets. Fixing risk and PNL thereof is secondary priority for now."
"as i said before-i dun mind helping on your fixings, but i'm not setting libor 7bp away from the truth i'll get ubs banned if i do that, no interest in that."
"pls try to keep 1y[ear] low on screen mate."
"Currently we are in the bottom quartile. A move to the middle [of the pack] is worth 500k. There is some reluctance on their part to move it higher as they are concerned about the reputational risks of putting in a high fix. I'd agree with this if we were to set in the top quartile that may be the case, but I don't think anyone's really got their eye on UBS's 3m yen fix."
"if you drop your 6M dramatically on the 11th mate, it will look v fishy, especially if [Panel Bank 5] and [Panel Bank 2] go with you. I'd be v careful how you play it, there might be cause for a drop as you cross into a new month but a couple of weeks in might get people questioning you." (Reply: "don't worry will stagger the drops ...")
No honor among thieves
"As I said to you, I got to say this is majorly frustrating that those guys can give us [expletive] as much as they like. ... One guy [Trader A] wants us to do one thing and [Trader B] wants us to do another."
On 16 April 2008, Manager D and Trader-Submitter D discussed The Wall Street Journal article referred to in paragraph 119. Manager D commented "great article in the WSJ today about the libor problem". Trader-Submitter A replied " ... just reading it". Approximately two hours after that discussion the following exchange occurred:
Trader-Submitter D: "mate any axe in [GBP] libors?"
Manager D: "higher pls"
Trader-Submitter D: "93?"
Manager D: "pls"
Trader-Submitter D: "[o]k"
Manager D said to Trader-Submitter C: "JUST BE CAREFUL DUDE." Trader-Submitter C replied: "i agree we shouldntve been talking about putting fixings for our positions on public chat."
Bingo. What he said.
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