For any who doubted whether there was honour among thieves, or indeed among investment bankers, solace may be found in the details of a settlement between UBS, a Swiss bank, and regulators around the world over a vast and troubling conspiracy by some of its employees to rig LIBOR and EURIBOR, key market interest rates. Regulators in Britain and Switzerland have argued that manipulation of interest rates that took place over a long period of time, involved many employees at UBS and that, according to Britain’s Financial Service Authority, was so “routine and widespread” that “every LIBOR and EURIBOR submission, in currencies and tenors in which UBS traded during the relevant period, was at risk of having been improperly influenced to benefit derivatives trading positions.” In these settlements UBS agreed to pay 1.4 billion Swiss Francs ($1.5 billion) to British, American and Swiss regulators.
Yet, even in the midst of this wrongdoing there was evidence of a sense of honour, however misplaced. One banker at UBS, in asking a broker to help manipulate submissions, promised ample recompense:
“I will fucking 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.”
Further hints emerge of the warped morality that was held by some UBS employees and their conspirators at brokers and rival banks. In one telling conversation an unnamed broker asks an employee at another bank to submit a false bid at the request of a UBS trader. Lest the good turn go unnoticed the broker reassures the banker that he will pass on word of the manipulation to UBS.
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 interchanges published by the FSA also reveal a comical stupidity among people who, if judged by their above-average pay, ought to have been expected to display above-average insight and intelligence. Sadly, they showed neither.
In one instance, two UBS employees, a manager and a trader (who also submitted interest rates) discuss an article in the Wall Street Journal raising doubt over the accuracy of bank’s LIBOR submissions. “Great article in the WSJ today about the LIBOR problem” says one. “Just reading it” his colleague replies.
Yet according to the FSA, some two hours later they were happily conspiring to submit manipulated bids:
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”
In another moment of comical stupidity one employee sends out a request on a public chat forum at the bank asking the 58 participants if there are any requests for a manipulated rate. Later, after being admonished to “BE CAREFUL DUDE” in a private note from a manager, he replies “i agree we shouldnt ve been talking about putting fixings for our positions on public chat (sic)”.
Apart from the salacious glimpse that these settlements give into the foul-mouthed and matey culture (as well as atrocious grammar) of investment banking trading desks, they also reveal worrying suggestions that this conspiracy was bigger than previously suspected. Information released by the FSA shows it involved not just banks, as was previously known from a settlement earlier this year by Barclays, but that it also involves the collusion of employees at inter-broker dealers, the firms that stand between banks and help them to trade with one another.
Regulators found that brokers at these firms helped coordinate false submissions between banks, posted false rates and estimates of where rates might go on their own trading screens, and even posted spoof bids to mislead market participants as to the real rate in the market.
The details in these settlements suggest that lawyers representing clients in a clutch of class-action lawsuits in America against banks including UBS will have a field day.
The first reason they are cheering is because UBS didn’t simply submit false estimates of interest rates on its own. According to the settlement documents, UBS tried and apparently succeeded in some cases in getting other firms to collude in manipulating rates. That collusion strengthens the case of civil litigants in America who are arguing in court that banks worked together to fix prices. It also undermines one of the defences filed by banks in American courts that their submissions, although possibly incorrect in some cases, were simply the individual acts of banks that happened by chance to be acting in parallel. The latest settlements may also make it easier for civil litigants to claim damages from UBS since the Swiss regulator found that it had profited from its wrongdoing.
In addition, the revelation that some brokers were also complicit will add further defendants to the already long list of firms being sued.
A further signal by these settlements comes from the size of the penalty, which is more than three times larger than that imposed on Barclays. Both UBS and Barclays had applied for leniency and discounts on their fines for co-operating with investigators. Others have been less cooperative and can thus expect somewhat harsher treatment.
© The Economist Newspaper Limited, London (December 19, 2012)