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UBS has agreed to pay a $1.5bn fine to authorities in the UK, the US and Switzerland for its role in the manipulation of the key interbank lending rate known as libor.
Switzerland's biggest bank also said it had pleaded guilty to one count of wire fraud with the US Justice Department in relation to rate manipulation in the market for yen libor in a statement published Wednesday. The fine is at least three times that paid earlier this year by Barclays and will result in a net loss in the bank's fiscal fourth quarter of around 2.5bn Swiss francs (£1.7bn/$2.7bn).
The bank has been co-operating with regulators and investigators in connection with the allegations since at least 2011.
"During the course of these investigations, we discovered behavior of certain employees that is unacceptable. Their misconduct does not reflect the values of UBS nor the high ethical standards to which we hold every employee," said CEO Sergio Ermotti.
"We have cooperated fully with the authorities and taken decisive and appropriate actions to correct the issues and to strengthen our control processes and procedures. We deeply regret this inappropriate and unethical behavior. No amount of profit is more important than the reputation of this firm, and we are committed to doing business with integrity."
The UK's Financial Services Authority agreed to a fine of £160m, while fines paid to the US Commodity Futures Trading Commission and the US Department of Justice will amount to around $1.2bn the bank said. Finma, the Swiss regulator, collected a fine of 59m Swiss francs.
The FSA said it found at least 2,000 documents showing attempts to manipulate the benchmark interbank lending rate, which underpins around $500tn worth of global financial securities.
"The findings we have set out in our notice today do not make for pretty reading," said FSA director of enforcement Tracey McDermott in a statement. "The integrity of benchmarks such as Libor and Euribor are of fundamental importance to both UK and international financial markets. UBS traders and managers ignored this."
The watchdog said the UBS misconduct took place in several countries including Japan, Switzerland and the UK, and involved at least 45 individuals including traders, managers and senior managers between 2005 and 2010.
"There should be no doubt about how seriously the FSA views these failings," said McDermott. "This is our largest penalty to date and demonstrates our commitment to ensuring that those in the wholesale markets do not put their own interests above those of the markets as a whole."
The FSA revealed details of communications between traders and brokers that underscored the detailed level of complicity in the bid-rigging, citing a particular example on 18 September 2008 in which a trader attempted to convince a broker to lower his rate submission for six-month libor denominated in Yen.
"If you keep 6s unchanged today ... I will f***ing 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"
The FSA said UBS entered into as many as nine so-called "wash trades" - in other words risk-free trades that cancel each other out and create no legitimate commerical benefit - that generated illicit fees of more than £170,000 for various brokers.
UBS CEO Ermotti said at least 40 people have been asked to leave the bank as a result of the libor probe but added that he does not believe the guilty plea made in Japan will prompt an exit from that market, nor does he anticipate further sanctions from the Japanese regulator.
The penalities come less than a month after a former UBS employee was sentenced to seven years in prision for his role in the biggest "rogue trading" scandal in British history that eventually cost the bank more than $2.3bn.
Kweku Adoboli, 32, who worked on the bank's Exchange Traded Funds desk, denied the charges, testifying that managers had pressured him to take unauthorised risks in a relentless effort to generate profits for the bank in its London office. He told them that he had acted alone in hiding losses and booking fake hedges to cover his positons from scrunity, but told his girlfriend in a text message on the day of his arrest that the story had "too many miniscule pieces of evidence that will end up ripping (it) to pieces".
UBS shares rose 0.6 precent in Zurich to trade at 16.16 Swiss francs. The shares have risen around 37 percent so far this year.