UBS

Is it just obviously true that if (1) you had a Libor-based loan or swap or whatever, (2) Libor was intentionally manipulated by a bank or a scheming cabal of banks, and (3) that manipulation moved Libor against you and cost you money, then (4) you should be able to sue those banks to get back that money? Maybe? But then what do you do about this?

The preliminary analysis of individual quotes from panel banks shows that some anomalies can be found in the submissions, despite Thomson Reuters sanity checks. These anomalies can be seen as fat finger errors. For example on 12 June 2004, Bank 30 provided quotes between 44% and 55.5% for all tenors, and on 14 August 2006, the same bank provided quotes of 66% for a range of maturities (1 week to 3 weeks and 2 months to 5 months) as indicated in Chart 2.

That’s from the European Banking Authority – European Securities and Markets Authority report and recommendations on what to do about Euribor, a slightly less corrupt Continental analogue of Libor overseen by the European Banking Federation. Euribor was not, you’ll be pleased to know, 44% for any tenor on any date in 2004, but some of these fat finger errors do seem to have moved Euribor, though by mostly trivial amounts. Read more »

UBS’s $1.5 billion settlement for manipulating interbank lending rates is the fourth separate regulatory finding against the Swiss group in as many years – underlining the failure of bank executives to reform the corporate culture…Just last month, a London jury convicted one of UBS’s former traders, Kweku Adoboli, of the biggest banking fraud in British history after he lost $2.3 billion in rogue trades. The FSA also fined the bank 29.7 million pounds ($39.2 million) for allowing the unauthorized trades. The trading loss is now seen among UBS staff as the new benchmark of wrongdoing, with reports of relief among employees that the bank’s $1.5 billion global Libor settlement was “only half an Adoboli.” [FT]

Not everyone would have the balls, but Adobli did and for that he deserved props. Read more »

The UBS Libor settlements are really a garden of infinite delights; there are many semi-literate, fully criminal emails and IMs and you can read them here or here or here or here or in the FSA Final Notice. It is hard to pick a favorite thing but here’s a quirky one from the FSA:

58. Certain [interdealer] Brokers also routinely disseminated their views about where LIBOR would set based on their market knowledge, including information about transactions in the relevant cash markets. These market views, commonly referred to as “run throughs”, were of assistance to market participants, including Panel Banks when determining their JPY LIBOR submissions. A number of Panel Banks relied on run throughs and on occasions some of them simply adopted them when making their submissions.

59. In addition to asking Brokers to make specific requests of Panel Banks for specific submissions, Trader A also asked Brokers to tailor their run throughs to benefit UBS’s JPY positions.

So: Trader A, the yen swaps trader who seems to have been the worst1 Libor manipulator at UBS, sometimes asked his brokers to lie when they wrote down their guesses of the rate that other people would guess those other people could borrow at. UBS in general, and Trader A in particular, seem to have been all-around horrible, granted, but it’s worth taking a step back to notice the oddity of the system they lived in:

Trader A manipulated a second derivative of borrowing rates: not a rate, not a guess of a rate, but a guess of a guess of a rate. David Enrich finds this troubling: Read more »

I assume that there’s someone somewhere whose job it is to think about this, but the big Libor fine that appears to be in UBS’s future got me wondering: how do they decide how big these fines are supposed to be? In most fraud cases you can tot up how much someone stole and use that as a starting point, inflating or deflating it for different levels of evil or remorse. But that doesn’t seem to be a promising avenue in Liborgate, where the money involved is hard to calculate and mostly flowed around the manipulating banks without touching them directly. The fine-setters seem to have about four things to think about:

  • how much bad stuff did the bank do,
  • how much money did they make doing it,
  • how caught are they, and
  • how sorry are they now.

On how much bad stuff … really the point of these settlements is that you’ll never quite know. The Barclays settlement documents contain tons of delightful emails, but they’re framed by the usual prosecutorial boasting that they are “just some examples of the numerous trader requests over the years in question.” They’re a sampling thrown in for scandalous effect, not a real accounting of Barclays’ rate manipulation. For the CFTC to actually publish every instance that it discovered of rate-fixing, in a settlement, would be silly. For one thing, the settlement is designed to avoid the necessity of doing the work to get such an accounting. For another, the settlement is designed to avoid the public release of such an accounting, which would be ammunition for the private lawsuits that have sprung up around Libor.

So we’re unlikely to get a real official read on whether UBS was worse than Barclays and by how much. But the fine is obviously a clue that they were pretty bad. From David Merkel’s data they actually seem to have been middle-of-the-pack as a Libor submitter, without the extreme submissions and big swings that Barclays had. But to be fair that is in 3-month USD and part of UBS’s thing seems to have been manipulating Libor in more tenors and currencies than Barclays did. Read more »

UBS, Switzerland’s biggest bank, may be fined more than $1 billion by U.S. and U.K. regulators for trying to rig global interest rates, more than double the amount levied against Barclays Plc, according to a person familiar with the probe….The fine will likely be the largest against any bank levied by the U.S. and U.K. authorities in the Libor probes, the person said. [Bloomberg]

Opening Bell: 11.26.12

UBS Stung By Adoboli Case (WSJ)
Swiss financial market regulator Finma said it will keep a close eye on UBS’s investment bank for the foreseeable future and may ask it to raise fresh capital, following an investigation into failures that allowed London-based trader Kweku Adoboli to make unauthorized trades. At the same time, the U.K. Financial Services Authority fined UBS £29.7 million ($47.6 million). Mr. Adoboli was convicted of fraud last week and sentenced to a seven-year prison term. “The measures ordered by Finma include capital restrictions and an acquisition ban on the investment bank, and any new business initiative it plans must be approved by Finma,” the regulator said. Finma will also consider “whether UBS must increase capital backing for its operational risks,” will appoint a third party to ensure corrective measures are introduced, and will organize an audit to review the steps taken by UBS. Finma declined to say when the auditing review would be completed or when a decision on a capital increase would be made, though a spokesman said this is likely to be within months rather than years.

SAC Fund Manager Faces Choice of Trial or Deal (Bloomberg)
Martoma, 38, used illegal tips to help SAC make $276 million on shares of pharmaceutical companies Elan Corp. and Wyeth LLC, according to the Justice Department and the Securities and Exchange Commission. Arrested last week, he is to appear today in Manhattan federal court for masterminding what the U.S. calls the most lucrative insider-trading case ever.

Flowers Foods Sizes Up Hostess (WSJ)
The Thomasville, Ga., company is considered a likely bidder for some of the assets owned by Hostess, which last week was granted permission by a federal bankruptcy-court judge to begin liquidating. The end came after a contentious bankruptcy that began in January and culminated this month in a strike.

Goldman Turns Down Southern Europe Banks as Crisis Lingers (Bloomberg)
Goldman Sachs, the No. 1 stock underwriter in Europe, turned down roles in offerings by banks in Spain and Italy this year, the only top U.S. securities firm not to take part in the fundraisings by southern European lenders as the region’s debt crisis stretches to a fourth year. The firm declined a role in Banco Popular Espanol SA’s 2.5 billion-euro ($3.2 billion) rights offering this month because it wanted greater protection to avoid potential losses on the sale, two people familiar with the talks said. JPMorgan and Morgan Stanley are helping to guarantee the deal. Goldman also didn’t underwrite this year’s share sales by Italy’s UniCredit SpA and Portugal’s Banco Espirito Santo SA, which drew Bank of America Corp. and Citigroup.

Knight Seen Getting Acquisition Bids This Week (Bloomberg)
The company with a market value of about $430 million was bailed out by six financial firms in August after losing $457 million in a trading error. Chicago-based Getco LLC, one of the rescuers, and Virtu Financial LLC in New York are among the likely bidders, said the person, who requested anonymity because the negotiations are private. The Wall Street Journal reported Nov. 23 that Knight expected offers for its market-making unit.

Woman who rode manatee charged with violating protection act (Sentinel)
A 53-year-old Pinellas County woman was arrested Saturday for violating the Florida Manatee Sanctuary Act by riding a sea cow in the waters near St. Petersburg in September. Ana Gloria Garcia Gutierrez of St. Petersburg was arrested at her place of employment — Sears at Tyrone Square Mall in St. Petersburg — on a warrant issued by the State Attorney’s Office. The charge is a second-degree misdemeanor. The punishment could be a $500 fine or up to 60 days in jail, the Tampa Bay Times said. Gutierrez stepped forward after the Pinellas County Sheriff’s Office released photos of a then-unknown woman riding a manatee near Fort DeSoto Park in Pinellas County on Sept. 30. “Gutierrez admitted to the offense claiming she is new to the area and did not realize it was against the law to touch or harass manatees,” the Pinellas County Sheriff’s Office said in a statement. Read more »