The record £940m fine levied on Swiss bank UBS threatens to shift the focus of the worldwide Libor-rigging investigations to the intricate web of relationships between banks and brokers at the heart of the financial system.
More than 2,000 requests for "inappropriate submissions" to the crucial interest rates were documented by the Financial Services Authority, which found 45 UBS traders, managers and senior managers were involved in, or aware of, the practice of manipulating the benchmark rate.
Some 1,000 of these requests were made to 11 brokers at six brokerage firms, the FSA said. While the participants were not named, the UK regulator found that brokers had accepted "corrupt" payments – as much as £15,000 a quarter – for helping UBS to manipulate the rate.
American regulators also found that UBS colluded with at least four other banks on the panel that set Libor to make false submissions, and induced at least five interdealer brokers to disseminate false information or otherwise influence other panel banks' submissions.
The regulators published a series of colourful email exchanges and telephone conversations.
One phone call on 18 September 2008 – just days after the collapse of Lehman Brothers – illustrates the type of promises made by UBS traders. "If you keep 6s [the six-month Japanese yen Libor rate] unchanged today … I will fucking do one humongous deal with you," the trader told a broker. "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, $100,000 … whatever you want … I'm a man of my word."
The emails provide the most graphic illustration yet of the scale of rigging of the keyimportant Libor rates before and during the 2008 financial crisis, when UBS ensured its submissions to the Libor panel did not suggest it was in financial difficulty.
It was bailed out in October 2008 at about the time that UK banks such as Royal Bank of Scotland – also braced for a Libor-rigging fine – were rescued by taxpayers.
One trader at UBS devised strategies that were put in place to help ensure he made profits for other trading positions linked to Japanese yen. "Sometimes he looked ahead and conducted sustained manipulative operations for weeks to move yen Libor in the direction he needed, even coining names for these longer-term schemes, such as 'the Turn Campaign' and 'Operation 6m'," said the US regulator, the Commodity Futures Trading Commission.
The FSA is continuing investigations into six other financial companies – not all of them banks – after taking action against Barclays, which was fined a total of £290m in June, and now UBS. A dozen firms around the world are thought to be under investigation.
RBS, Deutsche Bank and JP Morgan are among the many banks that have made legal disclosures about co-operating with authorities. RBS has fired traders, while interdealer broker Icap has suspended one trader and put three on administrative leave.
Lawyers are warning of further arrests after the Serious Fraud Office arrested three British men last week concerning the Libor investigation.
"Of particular interest in today's announcement of UBS's global settlement is the detail that has emerged of the heavy involvement of interdealer brokers in fixing the Libor rate and the alleged corrupt payments to these brokers," said David O'Mahony, complex fraud barrister at 7 Bedford Row chambers. "It is highly likely that other banks may now be implicated in similar dealings with these brokers and further arrests may well occur."
There are also concerns about potential litigation. "The big unknown factor is the civil litigation that could follow on as a result of this," Paras Anand, European equities head at Fidelity Worldwide Investment, one of UBS's biggest investors, told Reuters. "The issue for shareholders is the challenge of pricing that risk in."
The bank's shares slipped only slightly on the scale of the fine, which follows a wave of embarrassments for UBS, including the jailing last month of former trader Kweku Adoboli.
Ratings agency Fitch said: "The Libor fine is larger than we anticipated but can be absorbed by 2012 earnings so that UBS will maintain a solid capitalisation." But it also warned about the "potential for material litigation expenses and civil settlement costs".
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