UBS and the Libor scandal: the gift that keeps taking
If ever a banking scandal deserved to arouse public fury it is the one at UBS over its part in rigging money markets
Call it scandal fatigue. A palpable sense of resignation now greets each fresh revelation of even the most colossal financial fiascos. Whether it is HSBC handing over £1.2bn in fines and charges for lax controls against money-laundering, Kweki Adoboli getting seven years' jail for rogue trading, or JP Morgan fessing up to over £3.5bn in losses from making supersize bets in the City, these debacles register – but fail to generate the anger that the sums and the misconduct involved deserve. Perhaps outrage requires a hate figure to provoke it: a Fred the Shred, or a Bob Diamond.
Yet if ever a banking scandal deserved to arouse public fury it is the one being uncovered at UBS over its part in rigging money markets. This week's details from regulators about just how flagrantly senior staff at the multinational bank went about fixing so-called Libor rates – the interest rates that determine everything from the cost of your mortgage to the monthly loan repayments made by businesses and local councils – make clear that the Libor scandal goes much further than a few rogue individuals or even a few rotten institutions. This is a far bigger scandal than the horrors unearthed by regulators at Barclays Capital over its part in the Libor fixing. There, investigators managed to nail 14 staff and were unable to show how the scammers actually profited from their scam.
In the case of UBS, regulators have already caught 45 individuals, and found clear evidence of profiteering. As the £940m fine slapped on UBS this week (the second such fine, unbelievably – against £290m for Barclays) demonstrates, this is a much bigger case. And crucially, it shows not just a few rotten apples but an entire rotten culture, where highly paid staff at some of the world's biggest banks and City dealers colluded in fixing quoted market prices.
They did so blatantly – through emails and internet message boards – and cynically. "You know, scratch my back, yeah an all," reads one exchange from a banker to a broker at another firm. "Oh definitely, yeah, play the rules." They did it for personal gain: "I'll pay you, you know, 50,000 dollars, 100,000 dollars... whatever you want," reads another UBS trader's promise. The Swiss watchdog puts at $64m the clearly calculable profit made by UBS alone through just one year's tampering with Libor. And they did it in volume. The Financial Services Authority has totted up at least 1,900 occasions when UBS bankers asked their colleagues, other brokers and employees at other banks for Libor to be fixed for their gain. And those are only the written requests: the verbal demands would surely be at least as abundant.
This corruption of one of the most prosaic things in financial markets was so widespread that senior managers either allowed it, or turned a blind eye, or were so negligent as to raise questions about whether they violated their fiduciary duties to shareholders. For the record, UBS went for years without proper supervisory controls on the department that fixed Libor. Yet this goes beyond a single Swiss bank, even one as large and ungainly as UBS. Over at taxpayer-owned RBS, Stephen Hester has been warning for months that he will soon need to surrender a massive fine to regulators. And the watchdogs themselves are investigating not only banks, but broker-dealers. An entire industry is now under a huge and very black shadow. And all this is happening just a few weeks before the yearly bonus-round.
The official answer so far to misconduct has been chasing a few bad apples and fining the banks that house them. That is no way near enough. The fines paid by Barclays and UBS seem almost like the costs of doing business – irksome, sure, but a punt worth making. It is surely time to talk about depriving major offenders of their licences to do some kinds of market activity. That may sound unduly punitive to some regulators, but consider: the Libor scandal is already proving to be one of the biggest in banking history – and it has only just begun to unravel.
Yet if ever a banking scandal deserved to arouse public fury it is the one being uncovered at UBS over its part in rigging money markets. This week's details from regulators about just how flagrantly senior staff at the multinational bank went about fixing so-called Libor rates – the interest rates that determine everything from the cost of your mortgage to the monthly loan repayments made by businesses and local councils – make clear that the Libor scandal goes much further than a few rogue individuals or even a few rotten institutions. This is a far bigger scandal than the horrors unearthed by regulators at Barclays Capital over its part in the Libor fixing. There, investigators managed to nail 14 staff and were unable to show how the scammers actually profited from their scam.
In the case of UBS, regulators have already caught 45 individuals, and found clear evidence of profiteering. As the £940m fine slapped on UBS this week (the second such fine, unbelievably – against £290m for Barclays) demonstrates, this is a much bigger case. And crucially, it shows not just a few rotten apples but an entire rotten culture, where highly paid staff at some of the world's biggest banks and City dealers colluded in fixing quoted market prices.
They did so blatantly – through emails and internet message boards – and cynically. "You know, scratch my back, yeah an all," reads one exchange from a banker to a broker at another firm. "Oh definitely, yeah, play the rules." They did it for personal gain: "I'll pay you, you know, 50,000 dollars, 100,000 dollars... whatever you want," reads another UBS trader's promise. The Swiss watchdog puts at $64m the clearly calculable profit made by UBS alone through just one year's tampering with Libor. And they did it in volume. The Financial Services Authority has totted up at least 1,900 occasions when UBS bankers asked their colleagues, other brokers and employees at other banks for Libor to be fixed for their gain. And those are only the written requests: the verbal demands would surely be at least as abundant.
This corruption of one of the most prosaic things in financial markets was so widespread that senior managers either allowed it, or turned a blind eye, or were so negligent as to raise questions about whether they violated their fiduciary duties to shareholders. For the record, UBS went for years without proper supervisory controls on the department that fixed Libor. Yet this goes beyond a single Swiss bank, even one as large and ungainly as UBS. Over at taxpayer-owned RBS, Stephen Hester has been warning for months that he will soon need to surrender a massive fine to regulators. And the watchdogs themselves are investigating not only banks, but broker-dealers. An entire industry is now under a huge and very black shadow. And all this is happening just a few weeks before the yearly bonus-round.
The official answer so far to misconduct has been chasing a few bad apples and fining the banks that house them. That is no way near enough. The fines paid by Barclays and UBS seem almost like the costs of doing business – irksome, sure, but a punt worth making. It is surely time to talk about depriving major offenders of their licences to do some kinds of market activity. That may sound unduly punitive to some regulators, but consider: the Libor scandal is already proving to be one of the biggest in banking history – and it has only just begun to unravel.
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