Following the latest news on
) involvement in a rate-rigging scandal, shares of UBS fell more
than 2% at the trading session in Zurich. On Friday, the Hong
Kong Monetary Authority (HKMA), Hong Kong's main banking
regulator accused the bankers at UBS of trying to manipulate the
Hong Kong Interbank Offered Rate (HIBOR) between 2006 and 2009 in
China. However, UBS was safeguarded from fines to be imposed as
such attempts of manipulation minimally affected the HIBOR.
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The HIBOR is determined on the basis of estimates of rates at
which banks find it appropriate to lend to each other. This rate
is used by lenders and borrowers conducting business in Asia.
Notably, since 2010, UBS has not been a part of the HIBOR fixing
panel and further sanction is questionable.
Manipulation of benchmark interest rates by major financial
institutions triggered thorough investigations by regulatory
bodies across Europe, Asia and America. Such investigations have
cost several major global banks billions of dollars in
settlements. Alongside, we apprehend such scandals to dent the
financials of these banks over the long term.
The regulators in Hong Kong initiated the investigation into
HIBOR fixing in Dec 2012 after receipt of information related to
misconduct by UBS from overseas regulators. Later on, several
other banks including
HSBC Holdings plc
Deutsche Bank AG
The Royal Bank of Scotland Group plc
) and Societe Generale Group came under the purview of
investigation when penalties for rigging interest-rate benchmarks
summed $6 billion worldwide.
However, the regulator found substantial proof of misconduct
against UBS alone and no conspiracy between these banks to
manipulate the HIBOR were discovered. Internal chat messages
totaling 100 were unearthed by investigators, which were conveyed
by UBS traders showing "change requests" related to HIBOR.
Moreover, one-third of such messages actually influenced the rate
put forward by UBS for the HIBOR.
Therefore, HKMA has found flaws in UBS' internal controls and
governance related to the matter and has demanded the bank to
take disciplinary action against its staff members who failed to
report misconduct. Moreover, UBS has to work on a new supervision
plan within six months and the efficacy of the same should be
verified by an external auditor.
However, six traders involved in the rate manipulation along with
the employee responsible for submitting the rate have already
left the bank.
This is the latest revelation in the series of scandals related
to manipulation of benchmark interest rates for UBS. Back in Dec
2012, UBS conceded to pay a penalty of CHF 1.4 billion ($1.5
billion) to the U.S., U.K. and Swiss authorities to resolve
charges against the bank for its involvement in the manipulation
of the London Interbank Offered Rate (LIBOR).
UBS admitted to the charges brought forward by the regulators and
said that it involved LIBOR rate in several currencies - Yen
LIBOR, GBP LIBOR, CHF LIBOR, Euro LIBOR, USD LIBOR, Euribor and
Euroyen TIBOR. Further, as part of a proposed agreement with the
U.S. Department of Justice, its Japanese subsidiary, UBS
Securities Japan Co. Ltd., entered a plea for issues related to
the manipulation of certain benchmark interest rates, including
Regulatory authorities are investigating scandals related to
manipulations and are determined to put forward a landmark
judgment to terminate such shrewd practices in the future, bring
justice to the sufferers and punish the wrongdoers.
Notably, UBS' business has been severely impacted by the
financial crisis and the company suffered huge losses on credit
bets during that time. However, the Swiss government came to its
aid and currently the company is subject to stringent capital
norms. Moreover, the tax probe and mounting legal claims have
added to its woes.
However, amid such crisis and a challenging operating environment
as well as increased capital needs, the company announced several
overhauling measures and restructuring, which are aimed at
developing its core businesses and downsizing its distressed
While these are encouraging, we believe the troubles for this
stock are far from over. Currently, UBS carries a Zacks Rank #3