UBS Pleads Guilty, Pays $1.5 Billion to Settle Rate LIBOR Probe (Update 1)

Trader A: "If you keep 6s unchanged, i.e. the six month JPY LIBOR rate unchanged today... I will f-----g do one humongous deal with you... Like a 500,000 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, $100,000... whatever you want ... I'm a man of my word," a transcript of a phone call released by the FSA states.

While emails show misconduct at various UBS units, the alleged violations occurred mostly in the bank's Japanese unit, and involved Yen-denominated Libor rates. The violations escalated with the 2008 financial crisis, as traders colluded to mask borrowing costs and financial struggles.

Libor and overnight rates denominated in other major currencies are a key reference rate for short-term bank funding, interest rate swaps, corporate bonds and even consumer financial products like adjustable rate mortgages. A manipulation of the rates may have unfairly impacted the borrowing costs of homeowners, governments and corporations, as banks allegedly tried to profit or curb losses tied to floating interest rates at the height of the financial crisis.

In the $1.5 billion UBS settlement, the Commodity Futures Trading Commission and DoJ will take in roughly $1.2 billion fines, while Britain's FSA will receive a $260 million fine. A remaining $65 million was taken by Swiss regulators, and was deemed the bank's gains from its multi-year manipulation.

"We discovered behavior of certain employees that is unacceptable," Sergio P. Ermotti, chief executive of UBS, said in a statement. "We deeply regret this inappropriate and unethical behavior," he added.

Wednesday's fine exceeds the amount UBS reserved for regulatory settlements, causing the bank to forecast a wider than previously estimated loss of $2.7 billion for the fourth quarter.

The bank had set aside $975 million for legal settlements and fines, and it faces a slew of restructuring charges after announcing in late-October it would cut 10,000 jobs worldwide and exit key trading businesses in the U.S. HSBC, by contrast, paid a fine roughly in line with provisions it set aside.

The DoJ also said on Wednesday two senior UBS traders, Tom Alexander William Hayes and Roger Darin, have been charged with conspiracy in a criminal complaint. Hayes was also charged with wire fraud and a price fixing violation from in an alleged rate-fixing scheme, the DoJ said in a statement.