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

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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