LIBOR Reckoning: UBS’ “Routine and Widespread” Role Nets Modest Settlement

UBS AG reached a $1.5 billion settlement with regulators in three countries for its part in the rigging of LIBOR. The headline writer for Wednesday’s online Wall Street Journal  summarized a statement from the U.K. Financial Services Authority (FSA) saying that the Swiss bank’s role was “routine and widespread.”

The bank reached its deal with the U.S. Justice Department, the U.S. Commodity Futures Trading Commission, the FSA, and the Swiss Financial Market Supervisory Authority. The bank’s Japanese unit and two staff members face criminal charges for, among other things, coordinating their actions with multiple other banks.

Prior to this settlement, there was some concern that fallout from the LIBOR scandal could create a potential systemic issue by impairing bank capital as banks pony up to settle regulatory and legal claims. But if the UBS and Barclays settlements are any indication, such concerns are widely overblown. The fine amounted to a small fraction of 30 September shareowner equity for the bank, which was reported to be CHF 52.4 billion (US$57.4 billion). Investor reaction to the settlement generated a global yawn, with the company’s stock sinking five centimes in trading on Wednesday, to around CHF 15.20.

We are more inclined to support sanction, penalty, and criminal charges against individuals who either are engaged in or uncritically overseeing such fraudulent activities. That is a much better solution than charging the companies and, thusly, their shareowners — particularly those invested by virtue of index funds or broadly diversified pension funds — for the missteps of certain members of staff.

Nevertheless, $1.5 billion to settle “routine and widespread” rigging of a global interest rate benchmark seems mighty compassionate on the part of regulators.

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