ZURICH/NEW YORK – UBS will plead guilty to rigging benchmark interest rates and pay $545 million to U.S. authorities to settle their probe into alleged manipulation of foreign exchange rates.
The Swiss bank’s payment is part of what is expected to be a combined $5 billion settlement by five of the world’s biggest banks with U.S. and British authorities over alleged manipulation of the $5-trillion-a-day forex market.
Regulators had already fined six banks $4.3 billion last year for failing to stop their traders from trying to manipulate forex rates. This followed a year-long inquiry which has put the largely unregulated market on a tighter leash and accelerated a push to automate trading.
South African authorities joined the global investation into the forex market this week, showing how there is some way to go before banks can try to put this behind them.
UBS said on Wednesday the U.S. Federal Reserve had fined it $342 million for its role in the forex scandal. Unlike the four other banks, JP Morgan, Citigroup, Barclays and Royal Bank of Scotland, which are expected to plead guilty to criminal charges later on Wednesday, UBS has not been charged because it was the first bank to report the misconduct to the U.S. Department of Justice (DOJ).
It also escaped any fine from the DOJ on the forex issues.
Instead, the Swiss bank will have to plead guilty to one count of wire fraud and pay a $203 million fine for its role in rigging the London interbank offered rate (Libor) after its involvement in the forex debacle breached an earlier agreement it had with the DOJ.
The bank is now under a three year “probation” period with the DOJ.
The bank said the new fines, which were much lower than expected, would not affect its earnings. Overall, UBS has paid out $2.84 billion over attempted manipulation of the forex market and interest rate benchmark Libor. The bank’s shares rose over 2 percent in early trade in a relief rally.
“It couldn’t have been better … Most of it was already priced in but something around $1 billion was expected, including the Libor fee,” Andreas Brun, an analyst with Zuercher Kantonalbank, said.
In the settlement later on Wednesday, JPMorgan and Citigroup are expected to be the first major U.S. banks to plead guilty to criminal charges in decades. It would be unprecedented for the parent companies or main banking arms of so many major banks to plead guilty to criminal charges in a coordinated action.
Britain’s Barclays is also expected to reach settlements with other British and U.S. regulators, which means its penalties could be significantly higher than the other banks and top $2 billion.
Barclays has set aside $3.2 billion to cover any forex fines, and other banks also have provisions for settlements.
Individuals at Barclays could also be held accountable if there is evidence of bad conduct, New York’s banking regulator Benjamin Lawsky told Reuters on Tuesday, echoing a warning he made last week.
Britain’s Financial Conduct Authority and some U.S. authorities fined a group of six banks $4.3 billion in November for forex manipulation, but Barclays did not join that deal due to complications with its regulator in New York.
The impact of guilty pleas by the parent companies or main banking arms of major banks is uncertain, and could jeopardise their U.S. operations.
The banks are seeking assurances from U.S. regulators they will not be barred from certain businesses if they plead guilty, several sources familiar with situation said.
The DoJ has been negotiating with the banks for months over how to resolve the forex allegations. Transcripts of online chat rooms made public in November showed how traders shared confidential information about client orders and otherwise conspired to benefit their own transactions.