Britain's Financial Services Authority has released a long note this morning based upon the findings of its Libor-rigging investigation at UBS. It does not look good for the Swiss bank, which has been fined £160m by the FSA, CHF59m by Finma and $1.2bn by the US Department of Justice. UBS has responded with a brief presentation of its own here.
This is what you need to know.
1. UBS traders come away looking like foul-mouthed adolescents
As was the case at Barclays, UBS traders sent emails about their rigging of Libor. And those emails portray them as childish buffoons incapable of spelling simple words correctly.
The FSA says the traders manipulating Libor called themselves "“the three muscateers [sic]”, “SUPERMAN”, and “captain caos [sic]”.
In other emails, they talk of "mind f*cks", promise to "rip our boys a boys a new one," and promise to, "f*cking do one humongous deal with you."
2. UBS's Libor fixing involved bribes
UBS's Libor-fixing efforts involved explicit bribes.
One UBS trader sent an email stating: "I need you to keep it [Libor] as low as possible ... if you do that .... I’ll pay you, you know, $50k, $100k."
The FSA says the bank made payments of £15k per quarter to a brokerage firm which offered a 'fixing service'. This payment was shared between brokers at the firm, one of whom received £5k a quarter for his efforts.
Less directly, the FSA says UBS engaged in so-called, "wash trades" (i.e. risk free trades that cancelled each other out and which had no legitimate commercial rationale) with the direct intention of generating £170k in fees to broker A in reward for his Libor-setting efforts on behalf of UBS.
3. UBS's senior managers were aware of what was happening
"In total, improper requests were made directly involving approximately 40 individuals at UBS, 11 of whom were Managers. At least two further Managers and five Senior Managers were also aware of the practice of the manipulation of submissions to benefit trading positions," says the FSA.
4. As with the Kweku Adoboli case, UBS was found to have systemic weaknesses in its internal controls
Crazily, the FSA says UBS combined the roles of determining its LIBOR and EURIBOR submissions and proprietary trading in derivative products referenced to LIBOR and EURIBOR.
It points out that 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."
Even when UBS sought to improve its controls, it made no difference. "While UBS attempted to improve its systems and controls in 2008 and again in 2009, they remained inadequate throughout the Relevant Period," says the FSA.
5. During the financial crisis, UBS appeared to sanction the manipulation of Libor for the benefit of the bank
'Informal directives' were disseminated by UBS’s Group Treasury and Asset and Liability Management Group, says the FSA. These were focused on the need to: “protect our franchise in these sensitive markets.”
Elsewhere, the FSA points to conversations between Libor traders pointing to the need for the FSA to be "in line with the competition" and "in the middle of the pack."
Nevertheless, the FSA says that it "does not conclude that UBS as a firm engaged in deliberate misconduct."
6. UBS will make a loss as a result of the Libor fines
In UBS's presentation this morning on the Libor issue, it says it will make a fourth quarter loss as a result of Libor. As we've noted previously, UBS's bonuses pool may well be slashed as a result of this and previous year's bonuses clawed back.
Overall, today's FSA report makes UBS look like the wilder wild west of banking and vindicates some of Kweku Adoboli's claims about the culture on the trading floor. On the plus side, UBS has put new management in place since the Libor-related events occurred. On the negative side, the bank remains tainted and its claim today to have taken "swift and decisive action" and been "proactive in improving its processes and procedures" has to be doubted when the FSA appears to be saying the direct opposite.