UBS' Cheating LIBOR "Supermen" Kept Rate "As Low As Possible" To "Protect Sensitive Franchise"

Tyler Durden's picture

A $1.5bn fine. Sounds like a lot but in relation to the trillion dollar derivative markets hanging on every tick and reset from this now-proven-to-be-entirely-false market, it seems a fine is too easy. Just as with Barclays, the UBS traders (who combined their LIBOR submission and proprietary trading units from 2005 to 2009) used hints and suggestions and requests for "market color" to ensure fixes were exactly where they needed them up and down the curve. The quotes and hubris are entirely damning and also show a totally willful disregard for capture (especially following a discussion of the mainstream media noting 'odd' LIBOR quotes during the crisis). This went from top to bottom in the organization, summed up perfectly in this one exchange: "...It is highly advisable to err on the low side with fixings for the time being to protect our franchise in these sensitive markets. Fixing risk and PNL thereof is secondary priority for now."

The Problem:

During the period from 1 January 2005 to 1 September 2009 (in relation to LIBOR) and to October 2009 (in relation to EURIBOR), UBS combined the roles of determining its LIBOR and EURIBOR submissions and proprietary trading in derivative products referenced to LIBOR and EURIBOR. This combination of roles was a fundamental flaw in organisational structure given the inherent conflict of interest between these two roles and the absence of any effective means of managing that conflict. There was a clear conflict between the obligation to make submissions in accordance with the published criteria and the responsibility for the profitability of trading positions.

The hubris:

individuals referred to each other in congratulatory and exhortatory terms such as “the three muscateers [sic]”, “SUPERMAN”, “BE A HERO TODAY” and “captain caos [sic]”

The Simplicity of the cheat:

UBS’s systems and controls did not prevent Traders from persisting with their Internal Requests and attempting to influence submissions by camouflaging them as “market colour”.

The Reason:

“... It is highly advisable to err on the low side with fixings for the time being to protect our franchise in these sensitive markets. Fixing risk and PNL thereof is secondary priority for now”.

Media Attention:

Increased media attention in height of the crisis drove significant management pressure and demands: These were to “err on the low side”, be in the “middle of the pack”, “move towards... issuance levels” and revert back to “middle of the pack” when determining its LIBOR submissions between August 2007 and at least December 2008.

The To and Fro of Cheating...

if you keep 6s [i.e. the six month JPY LIBOR rate] unchanged today ... I will fucking do one humongous deal with you ... Like a 50,000 buck deal, whatever ... I need you to keep it as low as possible ... if you do that .... I’ll pay you, you know, 50,000 dollars, 100,000 dollars... whatever you want ... I’m a man of my word”


“...mates with the cash desks, [Panel Bank 3] and i always help each other out” with the result that “3m libor is too high cause I have kept it artificially high.”


"as i said before - i dun mind helping on your fixings, but i’m not setting libor 7bp away from the truth i’ll get ubs banned if i do that, no interest in that"


“if you drop your 6M dramatically on the 11th mate, it ·will look v fishy, especially if [Panel Bank 5] and [Panel Bank 2] go with you. I’d be v careful how you play it, there might be cause for a drop as you cross into a new month but a couple of weeks in might get people questioning you.” Trader A replied: “don’t worry will stagger the drops ...”

Some Concern But Generally Too Egotistical To Fail...

“i agree we shouldnt ve been talking about putting fixings for our positions on public chat”.


Manager D commented “great article in the WSJ today about the libor problem”. Trader-Submitter A replied “ ... just reading it”. Approximately two hours after that discussion the following exchange occurred:
Trader-Submitter D: “mate any axe in [GBP] libors?”
Manager D: “higher pls”
Trader-Submitter D: “93?”
Manager D: “pls”
Trader-Submitter D: “[o]k”

From Top to Bottom

“...the guidance I got from my management with regards to libors is that we should aim to be in the middle of the pack ..."


Bit apart from that, we are sure UBS is an upstanding bank worthy of wealthy clients' trust.

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SheepDog-One's picture

Huh, well nevermind all that apparently they didn't need to 'scam' anything at all just ram futures higher daily and what's anyone got to worry about?

CPL's picture

It's not a scam.


Call it what is it.  Theft.

fuu's picture

i agree we shouldnt ve been talking about putting fixings for our positions on public chat

Only doomer goons think markets are fixed.

Mercury's picture

But this particular corner of the market is easilly fixable.

And there is a difference between individual traders/desks/departments manipulating Libor in favor of their book and a bank making it a firm-wide “policy”.  Moving a rate like this is a zero-sum game in the sense that it helps/hurts many individual positions which are levered one way or the other– the kinds of positions that a big bank like UBS has all over the place across their various sub-businesses.  Surely the above shenanigans hurt other positions and businesses within UBS – the whole bank can’t be leaning the same way on LIBOR at any given time.


LIBOR is a badly conceived (mostly by accident and happenstance) system with a serious bottle-neck problem that is obviously gameable by small groups of very interested individuals.  And it should be fixed. It's not that hard.


But, although I happen to think TBTF mega-banks are dangerous, out of control and too tight with government(s), the LIBOR scandal is not really the best evidence for this argument.


ZIRP is orders of magnitude more pernicious than LIBOR tweaking which by the way has been very tight with US Fed Funds.

fuu's picture

Are you some sort of apologist?

Mercury's picture

I'm just saying that at some level the prop trader fox guarding the LIBOR henhouse model is a flawed one and it makes more sense to just replace it with something more transparent/functionally better...and stop blaming the fox for acting like a fox.

fuu's picture

"stop blaming the fox for acting like a fox"

So yes. How dare we blame people for their own behavior.

DavidC's picture

It might be a zero sum game Mercury, but if it's not a free market then making any reasoned analysis and taking positions or hedging accordingly is out of the window.


Mercury's picture

Yes and my point is it's just as out-the-window for other position takers within UBS or Barclays etc. who probably have no idea which way four guys on one of their other desks in London are leaning.  This isn't a firm-wide culture issue it's an issue with the half-assed, outdated LIBOR system itself which not so surprisingly, is being gamed by the very few prop traders who determine it.

LIBOR/EURIBOR (or whatever replaces it) would be more reflective of free-market rates if actual market rates were used (like repo rates or whatever makes most sense) instead.

In the meantime I think we're stuck with LIBOR for a while because many outstanding contracts/loans etc. are tied to it.  More specifically I think those contracts are tied to whatever Bloomberg/Reuters etc. says the rate is!

So, it will probably have to be a slow phase-out (I think that's happening already) unless all concerned parties are willing to re-write all of their outstanding deals.

And my larger, LARGER point is that the headline: Supermen" Kept Rate "As Low As Possible" To "Protect Sensitive Franchise"  could just as easily apply to the Federal Reserve Bank and the US Government in general in the context of the last four years.

LongSoupLine's picture

Weed out and publicly execute these shit pile fuckers. Then let's see what happens to the "markets" after that. Fucking assholes.

francis_sawyer's picture

Time to put a few bank teller trainees in handcuffs & show everybody how you've cleaned house...

Racer's picture

And if you or I do the slightest thing wrong, like mistakenly dropping an apple core or cigarette end, the full force of the law is smashed down on us and if we don't pay the fine, taken to court and an even heavier fine imposed

otto skorzeny's picture

try telling a cop to fuck off and see how much time you get sentenced to

Bicycle Repairman's picture

Jail time may or may not be the most effective incentive here, but will somebody at least admit that the incentives need to be reformed and then do something about it?  Today?

francis_sawyer's picture

Don't even think about testifying [unless you're ready to bring on some more holiday cheer]...

Everybodys All American's picture

Lying, cheating, stealing ... is that considered technical or fundamental analysis?

buzzsaw99's picture

business as usual

GMadScientist's picture

Seems to me anyone with a brain can now run on a "I'll actually put them in jail" populist platform and get some traction.\

Will there be ANY change in the estimation of LIBOR and other origination rates going forward? Or was this the whole dog and pony?

Acet's picture

I usually follow the open discussions on the Business News area of the BBC website and have noticed during the last couple of months a steep increase on the numbers of calls to imprision the bankers responsible, especially the ones at the highest level. Also people are moderating this demands higher than anything else.

Public anger against bankers is reaching boiling point, especially against the top level ones.


GMadScientist's picture

Someone told me once 
That there's a right and wrong,
And that punishment
Would come to those
Who dare to cross the line.

But it must not be true
For jerk-offs like you.
Maybe it takes longer to catch a total asshole.
But I'm tired of waiting.
Maybe it's just bullshit and I should play God,
And shoot you myself.
Because I'm tired of waiting.

Consequences dictate 
Our course of action
And it doesn't matter what's right.
It's only wrong if you get caught.
If consequences dictate
My course of action
I should play God 
And shoot you myself.
I'm very tired of waiting.

I should 
Kick you,
Beat you, 
Fuck you,
And then shoot you in your fucking head.

williambanzai7's picture

UBS is still a primary dealer and this piece of shit is still on the loose...


gwar5's picture

Whoever said "Crime does not pay" did not own a bank.  Willie Sutton: "...that's where the money is!"


It's really easy now to see why people in the 1930's hated banks and aided the bank robbers after they created the first Depression.


GMadScientist's picture

What else are you gonna do with your time after they take the farm?

I loved some of the period details they put into HBO's Carnivale like the people throwing rocks at the guy razing a shack for the bank.

Hobbleknee's picture

Looks like chat logs from teeny boppers who can barely complete a sentence. And they're all probably filthy rich.

Bicycle Repairman's picture

No time for writing when there is money to be raked in.

GMadScientist's picture

Biggest risk for them is an X360 "red ring of death" or controller battery drop-out.

steelhead23's picture

Tyler, somebody, anybody, isn't the LIBOR scandal much, MUCH bigger than most realize?  Look, we know that with the encouragement of banks like UBS, JPM, and others a number of financing programs included interest rate swaps as a hedge.  These hedges blew up, in part due to LIBOR manipulation.  Were I a county commissioner in Jefferson County Alabama, I would have the county attorney draw up a pile of complaints.  Each and every bank that fraudulently submitted false information to LIBOR injured the county.  They should all pay.  Does anyone out there know - have such complaints been filed - and if so, why the hell are banks stocks doing so well?

fuu's picture

"A $1.5bn fine. Sounds like a lot but in relation to the trillion dollar derivative markets hanging on every tick and reset from this now-proven-to-be-entirely-false market, it seems a fine is too easy."

It's even easier when you can pay the fine with OPM.

GMadScientist's picture

In short: captured regulators.

madcows's picture

Technically, it is only illegal to manipulate the numbers if you cannot afford the payoff.  Noone has gone to jail for this.  The banks just paid "fines", which is really just an overhead cost to be paid by the customer.

No crime committed, just business as usual.  Hell, if it was a crime, they'd just pay a politician to re-write the laws.

bankerbackbacon's picture

What about MF Global though? I mean we are talking segregated accounts. Rigging LIBOR is massive theft but its more faceless.

Looting segregated accounts and torching the bank to go unpunished? Who benefits from that fine? If I had an account with MF Global I would be soooo piiisssed. 

I'm amazed there are no people strapping bombs to their chest and waiting in the parkade for Corzine.

More importantly how can anyone think seriously about investment banking? (other than a post crash buy up for a little gravy)

batz's picture


Geitner, Summers, Bernanke, and a chorus of bank executives in unison:

"I for one am shocked, (shocked!) to find there is price fixing going on in here." 





Joebloinvestor's picture

The UK the financial SCAM hub of the world.

MillionDollarBoner_'s picture

If you ain't gonna do no time,

Might as well do the crime ;o)

resurger's picture

Nothing wrong here here, fraud is the new normal, ZH is the anomaly.