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

Tickers in this article: BAC BCS C HBC JPM UBS

Updated to include DoJ criminal charges against UBS traders

NEW YORK ( TheStreet) -- Swiss banking giant UBS(UBS) said on Wednesday it will pay a total of $1.5 billion to global regulators to settle a multi-year interest rate manipulation probe. The bank's Japanese subsidiary also entered a rare guilty plea with the U.S. Department of Justice in relation to its rate-rigging.

Previously, the bank agreed to U.S. sanctions for facilitating billions in U.S. tax evasion and money laundering.

With the settlement and guilty plea, UBS joins a growing list of banking conglomerates that have had their reputation stained by rate manipulation and money laundering probes in 2012.

In June, Barclays paid $450 million to settle a host of rate manipulation allegations with that signaled widespread fraud in the market. The settlement eventually cost Barclays ex-CEO Bob Diamond his job and served as a first read on how large fines would be for a rigging scandal of a commonly used benchmark rate, the London Interbank Offered Rate , otherwise known as Libor.

Currently, U.S. banking conglomerates such as Citigroup(C) , Bank of America (BAC) and JPMorgan(JPM) have referenced Libor-related liabilities in litigation reserves or risk factors attached to earnings filings.

Earlier in December, HSBC(HBC) of Britain reached a record $1.92 billion settlement with U.S. authorities on a probe that alleged the bank facilitated billions of dollars of bank transfers to Iran and helped laundering money for Mexican drug cartels.

UBS record-sized Wednesday Libor settlement signals escalating fines in the probe, given the extent of alleged misconduct.

In its settlement, the Dept. of Justice and Britain's Financial Services Authority alleged UBS's misconduct stretched a half-decade between 2005 and 2010, and details released with the investigation paint a picture of collusion and misconduct.

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.

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