) is said to be nearing a deal to pay a penalty of over $1
billion over its alleged involvement in the manipulation of the
London Interbank Offered Rate (LIBOR), according to a
Wall Street Journal
report. The announcement regarding the settlement is most likely
to come next week. Since negotiations are still underway, the
final amount could alter.
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As a matter of fact, UBS has been subject to scrutiny over this
issue for quite some time by the U.S. Commodity Futures Trading
Commission, the Justice Department, the U.K. Financial Services
Authority, and the Swiss regulators.
In addition to UBS, several of the big banks including
Bank of America Corp.
JPMorgan Chase & Co.
) are under the strict vigil of the regulators around the world
in connection to the LIBOR manipulation scam.
The LIBOR is determined on the basis of estimates of rates at
which banks find it appropriate to borrow from each other. It is
alleged that banks coordinated amongst themselves and submitted
false rates. This fraudulent move was made to profit from trades
or to appear more creditworthy than they actually are.
Since LIBOR is used as a benchmark for several lending
transactions around the world, any manipulation would impact
billions of users around the globe. Hence, regulatory authorities
are investigating the matter thoroughly and plan to put forward
an exemplary judgment so as to terminate such shrewd practices in
the future, bring justice to the sufferers and punish the
Earlier in the year,
) admitted to its fraudulent practices and agreed to pay a
penalty of $450 million for rigging the LIBOR. If UBS is imposed
with a fine of over $1 billion, it would significantly dwarf the
Barclays penalty amount. On the other hand,
Royal Bank of Scotland Group Plc.
) also hopes to achieve a settlement early next year.
Currently, we remain skeptical regarding UBS' penalty amount and
wait to see what the final amount comes up to. While the
settlement will put to rest a long-drawn investigation and UBS
can breathe relief, we believe that it will adversely impact its
Also in November, the company was slapped with a fine of £29.7
million ($47.6 million) for failing to prevent significant
unauthorized trading that resulted in a substantial loss totaling
$2.3 billion. The losses were incurred mainly on exchange traded
index future positions. The penalty was imposed by the British
authorities, The Financial Services Authority (FSA).
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, along with
Credit Suisse Group
), is subject to stringent capital norms. Moreover, the tax probe
and mounting legal claims have added to its woes.
However, amidst such crisis and a challenging operating
environment as well as increased capital needs, in recent months,
the company announced overhauling measures, 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. Hence, for UBS, which currently retains
a Zacks #4 Rank, implying a short-term Sell rating, we believe
that following the final announcement of the penalty, estimates
could go down leading to a deterioration in its Zacks Rank.