The Libor interest rate scandal is heating up again and UBS may now be facing up to a $1 billion fine. The Swiss bank may be forced to pay this due to charges that it rigged rates that affected Libor. And it could be forced to pay up as early as next week.
What’s surprising with this announcement is that it’s twice the amount as the highest fee thus far. Barclays, a British bank, was ordered to pay $450 million this past summer by both U.S. and UK regulators. This is the third fine ordered by the United States against a European financial entity.
The bank has so far declined any kind of comments, as have both the Financial Services Authority in the UK and the Department of Justice and Commodity Futures Trading Commission, both here in the U.S.
So far, Barclays is the only bank that’s agreed to settle charges against it associated with the Libor scandal. Libor is the benchmark that’s used for the interest rates on trillions of dollars in loans every day around the world. It’s an intricate number that’s especially sensitive to even the smallest shifts. Now, though, UBS could very well be the second bank that owns up to its role and shells out a huge fine.
So scandalous was the crisis that the fallout resulted in Barclay’s CEO and chairman to resign. It also set up the dynamics for huge payouts for other banks involved, as evidenced by this latest announcement.
This latest fine will be another hit to the troubled bank that 18 months ago had another hit, this time to the tune of $2.3 billion for another scandal involving rogue trader. It caused several to lose their jobs, some in upper management.
The specifics of Libor and how it works are complicated, but it’s used to determine the pricing of an endless number of financial products and services, which equates to $300 trillion on a global level.
Along with the announcement came word that at least three former traders and analysts have been arrested and will likely face criminal charges in the UK. One was a Citigroup trader and the other two worked at a brokerage house, RP Martin.
Meanwhile, Chris Wheeler, another analyst at London’s Mediobanca, said, “I’m not sure how much more reputational damage can be done to UBS. They are rebuilding that slowly, but it won’t help the wealth management business when you see this as a headline.” Usually, banks can take these kinds of hits – as long as it’s a single hit. They’ve historically been able to keep their reputations in tact, or at least, rebuild them. Politicians play a role in this as well and those long time customers can help, too. This, though, is going to be tougher to overcome, partly because the Libor scandal was so widespread and partly because of the timing of it breaking. It came even before the recession was said to be behind the U.S. The fact that financial and economical troubles continue to plague America only adds to the frustration of both consumers and those banking entities keen on rebuilding public trust.
The criticism has dragged on for months and consumers have long since lost faith in the entire global financial sector. Now, analysts are saying the trend is far from over and that it’s sure to be a massive burden to collectively overcome. The fact that this week also brought a whopping $1.92 billion fine for HSBC to settle the incredible charges of doing business with Mexican drug cartels. This is set to become the biggest fine in history for any bank. This is the third scandal this week, too. Earlier, Standard Chartered, another London bank, has been ordered to pay $327 million for violating U.S. sanctions against Iran, Sudan and other states, adding to an earlier $340 million for nearly identical regulation breaches. Meanwhile,
Germany’s largest bank, Deutsche Bank, was raided by tax inspectors and police. Five arrests were made and allegations include tax scams and trading violations.
Up next in the Libor scandal is Royal Bank of Scotland. That decision could come down as early as next week. This won’t be the end of the finds, though. There are several banks – many in the U.S. that are facing hefty fines as a result of their involvement in the scandal.
Even after the government and regulatory fines have been settled, all of these banks face a slew of consumer lawsuits. accusations will likely run the gamut, too. From claims of paying too much interest to deliberately misleading borrowers, there’s no end to the possibilities. Whether or not it forever changes banking remains to be seen, but it comes as little surprise that many are hoping it will do just that.