Earlier this year, the Libor scandal swept the newsfeeds causing the US and UK to do an extensive investigation into which company’s were involved and to what extent. US Assistant Attorney General Lanny Breuer described the scandal was “one of the most significant scandals ever to hit the global banking industry” (CNN Money).
Today was UBS AG (NYSE:UBS) day that it would learn its fate as the regulators have concluded their investigation and will begin the disciplinary actions. UBS has agreed to pay a $1.5 billion settlement after the bank admitted that it had committed fraud through the Libor benchmark. The settlement is the total fine that will be paid to the US, UK and Swiss governments.
Regulators found a lot of useful information during the investigation. As it stands, the interest rate manipulation scandal took place from 2001-2010 and involved over 45 UBS employees. The idea was to change rates favorably for the bank as it would benefit their trading positions and make it appear that the bank was stronger than it actually was.
UBS was reportedly colluding with other banks involved in the scandal and it was also found that the bank was making “corrupt” payments to various insiders worth about 15,000 British Pounds per quarter. Additionally, two UBS traders are facing criminal charges for their roles in the scandal.
Unfortunately, there could be more fines down the road as individuals are now coming forward claiming that they lost money due to the scandal. If this is the case, groups of investors could file a lawsuit against UBS and the other banks involved. In the end, that $1.5 billion settlement could get a little bigger by the time this scandal is truly worked out. Keep in mind that UBS was also fined $50 million by the British government earlier last month after the bank failed to stop the rogue trader that cost the bank $2.3 billion in losses.
Additionally, the bank paid US regulators $780 million to settle a suit that UBS was helping US investors hide money from the IRS. As you can see, UBS definitely has had some questionable dealings in the years since 2008. You can bet that one day all of these fines will catch up to them and ultimately continue to drag down earnings and growth.
To be fair, no European bank looking enticing to me right now. Most are getting their settlement bills from the Libor scandal and other scandals. In addition, the banks are dealing with an absolutely poor business environment in Europe currently. Keep an eye out for more headlines regarding settlement fees in the coming days to weeks. Also, keep an eye out for any press releases from these banks regarding earnings impact.
I believe that these near record fines will have a serious toll on these banks in a very uncertain time; usually not a good combination.
Disclosure: None
