Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Swiss bank UBS warns of penalties as forex settlement talks begin

Published 09/29/2014, 07:31 AM
Updated 09/29/2014, 07:31 AM
© Reuters Raindrops cover the logo of Swiss bank UBS at an office building in Zurich

© Reuters Raindrops cover the logo of Swiss bank UBS at an office building in Zurich

By Joshua Franklin

ZURICH (Reuters) - Switzerland's largest bank UBS warned it faced new fines after confirming it was holding talks to settle allegations it was involved in rigging foreign exchange rates.

Authorities from around the world are investigating allegations that dealers at major banks colluded and manipulated key reference rates in the $5.3 trillion-a-day foreign currency market, the world's biggest and least regulated.

UBS has started settlement talks with some of the investigating authorities, the bank said in a share-swap prospectus published on Monday. The terms proposed in the talks included findings that UBS did not have adequate controls over its foreign exchange business, it said.

UBS said it could face "material monetary penalties" in any deal struck. The foreign exchange probe is one of several legal headaches facing the bank as it shrinks its investment banking business.

It raised its provision against future litigation to 1.98 billion Swiss francs ($2.08 billion) earlier this year but has warned this might not be enough to cover possible fines and charges.

UBS did not identify the regulators it was talking to but sources told Reuters on Friday that Britain's Financial Conduct Authority (FCA) was talking to UBS and five other banks - Barclays, HSBC, Royal Bank of Scotland, JP Morgan and Citi - about a possible settlement that could results in each bank being fined hundreds of millions of pounds.

UBS said in its prospectus that other authorities could start settlement talks "in the near future".

The U.S. authorities, which traditionally levy far higher fines than their British counterparts, are not part of the UK negotiations.

Stung by a previous scandal into manipulation of benchmark interest rates which saw it pay out $1.5 billion in fines and penalties, UBS has tried to stay on top of the foreign exchange probe. It suspended at least five traders and approached U.S. authorities last year with information in the hope of gaining antitrust immunity if charged with wrongdoing.

UBS said on Monday it would continue to take "appropriate action" over personnel in connection with the foreign exchange probe.

Britain's Lloyds Banking Group said on Monday it had dismissed eight staff following an investigation into manipulation of benchmark interest rates after it was fined in July by American and British regulators.

So far, more than 30 traders from various banks have been put on leave, suspended or fired in connection with the FX probe. No individual or bank has been formally accused of any wrongdoing.

CORPORATE RESTRUCTURING

The prospectus UBS published on Monday is aiming to attract investors to swap their shares into a new group holding company, a restructuring effort designed to ensure it can be broken up more easily in a crisis.

Updated figures showed the bank has made a profitable start to the third quarter. Retained earnings as of Aug. 31 rose by 731 million Swiss francs to 27.1 billion Swiss francs ($28.44 billion) from 26.3 billion francs in the second quarter.

"It shows that they've been profitable which is good," said Kepler Cheuvreux analyst Dirk Becker.

A spokesman for UBS said it does not disclose what is in its retained earnings figure.

Equity attributable to shareholders also rose to 50.8 billion francs from 49.5 billion francs.

Shares in UBS were up 0.9 percent at 0647 ET, outperforming the European banking sector, which was down 1 percent.

UBS has a goal of tendering 90 percent of the new shares. The start of the initial acceptance period is Oct. 14 and ends on Nov. 11.

The bank reaffirmed that it expected the new structure will allow it to qualify for a capital rebate under Switzerland's too-big-to-fail requirements, resulting in lower overall capital requirements for the bank.

In addition to setting up the new holding company, UBS Group AG, the bank also plans to establish a Swiss subsidiary in mid-2015 and a holding company for its U.S. operations by mid-2016.

© Reuters. Raindrops cover the logo of Swiss bank UBS at an office building in Zurich

In the previous model, a parent company holds a host of interconnected UBS branches. The change means UBS's businesses can be separated more easily if one ran into trouble without jeopardizing the others, preventing a repeat of 2008 when Swiss taxpayers had to save the bank from huge losses in the United States.

(Reporting by Joshua Franklin; Additional reporting by Carmel Crimmins and Jamie McGeever; Editing by David Goodman and Susan Thomas)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.