Libor Scandal Just Took A Nasty Turn, Collusion Findings Should Make Banks Very Nervous

From Forbes
By Halah Touryalai, Forbes Staff
December 19, 2012

The worst case scenario around findings in the global Libor investigation may become a reality for banks.

Today UBS became the second bank to settle Libor manipulation charges agreeing to pay $1.5 billion to US, UK and Swiss authorities. The Swiss bank’s monetary punishment blows out of the water the $450 million Barclays settlement from July.

The UBS settlement is one that other banks under investigation are going to be looking at very closely. If the Barclays settlement rattled Libor-submitting firms then the UBS case has got them shaking in their shiny loafers.

Why? Simply put: Collusion. The charges made against UBS show the bank not only manipulated the Libor rate to make itself look healthier to outsiders but also, and perhaps more often, to make money by apparently colluding with other banks. From a regulator’s perspective that’s a lot worse than lying a bit to appear in better condition…

If more banks are implicated for this kind of collusion then, at the very least, expect more $1 billion-plus settlements. Collusion, after all, isn’t an act that can be committed alone.

Under the Sherman Antitrust Act price-fixing conspiracies are illegal and punishable by up to 10 years in prison. Earlier this year a Nomura analyst said if of the 16 bank defendants half were found guilty and the damages were trebled under the Sherman Act then each bank could bear losses to the tune of $2.3 billion. (The DoJ has charged former UBS traders Tom Hayes and Roger Darin with antitrust violations under the Sherman Antitrust Act.)

The documents released by authorities do not reveal the names of the other banks mentioned by UBS traders but the CFTC says at least four other banks colluded with the Swiss bank. Over the next few months more settlements will be announced with banks in both the US and Europe at the center. Just which level of the manipulation game they were playing will be illustrated by the sum of their settlements and the extent of charges filed against individuals.

Boston University School of Law Professor and former counsel to the Fed Board of Governors, Cornelius Hurley, says, “To date the Libor focus has been mostly on banks rigging Libor to enhance their brand and health. This seems much more about lining pockets and common theft.”

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