UBS AG (NYSE:UBS)(SWX:UBSN) announced today that its Board of Directors has authorized settlements with the US Department of Justice (DoJ) and Commodity Futures Trading Commission (CFTC) in connection with their investigations of benchmark interest rates.
The proposed settlement with the CFTC is subject to the Commission's approval. UBS has reached a settlement with the UK Financial Services Authority (FSA) concerning its investigation. The Swiss Financial Market Supervisory Authority (FINMA) will also issue an order concluding its formal proceedings with respect to UBS.
UBS agrees to pay a total of approximately CHF 1.4 billion in fines and disgorgement. UBS will pay GBP 160 million in fines to the FSA and CHF 59 million as disgorgement of estimated profits to FINMA. The Board has authorized a payment of fines totaling USD 1.2 billion to the DoJ and CFTC, and expects those authorities to make further announcements later today. These monies would be paid according to specified payment schedules.
The conduct described in the settlements includes the following:
Certain UBS personnel engaged in efforts to manipulate submissions for certain benchmark rates to benefit trading positions;
Certain employees at the bank colluded with employees at other banks and cash brokers to influence certain benchmark rates to benefit their trading positions; and
Certain personnel gave inappropriate directions to UBS submitters that were in part motivated by a desire to avoid unfair and negative market and media perceptions during the financial crisis.
The conduct encompassed by the settlements includes Yen LIBOR, GBP LIBOR, CHF LIBOR, Euro LIBOR, USD LIBOR, Euribor and Euroyen TIBOR, although the nature and extent of the conduct in question varied significantly from one currency to another.
The Board of UBS Securities Japan Co. Ltd., (UBSSJ) has authorized UBSSJ to enter a plea to one count of wire fraud relating to the manipulation of certain benchmark interest rates, including Yen LIBOR. The Board of UBS AG has authorized the firm to enter into a Non-Prosecution Agreement (NPA) with DoJ relating to UBS AG and all of its subsidiaries and affiliates, except for UBSSJ.
Today's resolutions stem from industry-wide -wide investigations into the setting of certain benchmark rates across a range of currencies. These investigations have focused on whether there were improper attempts by banks, either acting on their own or with others, to manipulate LIBOR and other benchmark rates at certain times.
UBS has fully cooperated with the authorities in their investigations and significantly enhanced its control framework for its submissions process for LIBOR and other benchmark interest rates. The investigations by other governmental authorities and private litigation referred to in our third quarter 2012 report remain ongoing notwithstanding today's announcements.
UBS CEO Sergio Ermotti said: "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. 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."
UBS Chairman Axel Weber said: "The Board and I have zero tolerance for inappropriate and unethical behavior of any of our staff. We appreciate that the authorities have recognized UBS for the thoroughness of our investigation and our exceptional cooperation. We are pleased that the authorities gave us credit for the important and positive changes we have already made. Our credibility with clients, investors and employees is critical and therefore we have to continue to strengthen the firm's operations, culture and awareness of risk."
Despite the expected payments announced today, UBS remains one of the best capitalized banks in the world.
Based on business activity through the date of this announcement, UBS believes its fourth quarter net profit attributable to shareholders will show a loss in the approximate range of CHF 2.0 to 2.5 billion, primarily as a result of: total provisions for litigation and regulatory matters, (including the LIBOR settlements, claims related to sales of residential mortgage backed-securities (RMBS) and other matters), of approximately CHF 2.1 billion; restructuring charges of approximately CHF 0.5 billion; and an own credit loss on financial liabilities designated at fair value of approximately CHF 0.4 billion. On an adjusted basis, we expect to report a pre-tax profit in the approximate range of CHF 2.5 to 3.0 billion for the year3. Because the quarter has not yet ended, the above estimates are subject to variability due to market movements (including those relating to own credit) and other factors, and in the case of after-tax estimates are subject to tax computations.
We are encouraged by the progress we have seen in the quarter to date on both RWA reduction and balance sheet deleveraging. Net new money is expected to be positive in the quarter as we have seen good flows in our Wealth Management and Wealth Management Americas businesses, while we have seen net outflows in Global Asset Management. Our Basel III phase-in common equity tier 1 ratio is expected to improve to around 14% by quarter-end and our fully applied Basel III common equity tier 1 ratio, inclusive of the effects from early adopting IAS 19R in the fourth quarter, is expected to be roughly in line with the third quarter's level of 9.3%.