Comment from thebrackpipe.com: More douchebaggery from one of America’s biggest banks. Now, does J.P. Morgan snatch ‘supreme douche’ status from Goldman Sachs? You be the judge.
Article below by Dan Fitzpatrick, Scott Patterson and Gregory Zuckerman of the WSJ:
J.P. Morgan Chase & Co. brushed off internal warnings and misled regulators and investors about the scope of losses on its “London whale” trades last year, according to a scathing Senate report.
One risk gauge at the largest U.S. bank projected in February 2012 that the firm could lose $6.3 billion on the trades. But the warning was dismissed by a key risk manager as “garbage,” according to the 301-page report by the Senate’s Permanent Subcommittee on Investigations. The New York company’s trading losses ultimately exceeded $6 billion.
The report, the product of more than 50 interviews and a review of 90,000 documents, found that the bank ignored alarms triggered weeks and in some cases months before Chief Executive James Dimon dismissed concerns about them as a “tempest in a teapot” on an April 13, 2012, earnings conference call. “While we have repeatedly acknowledged mistakes, our senior management acted in good faith and never had any intent to mislead anyone,” J.P. Morgan said Thursday.
The Senate effort is the first comprehensive account of an episode that has hit the company’s reputation for risk management, which once was viewed as the best on Wall Street. J.P. Morgan’s board halved Mr. Dimon’s 2012 pay following the trading losses, even as the company posted a record profit of $21.3 billion.
In an unrelated move, on Thursday the Federal Reserve cited the company for weaknesses in its capital planning and said J.P. Morgan would have to resubmit this year a plan to expand its share buyback and raise its dividend.
Senate investigators “found a trading operation that piled on risk, ignored limits on risk taking, hid losses, dodged oversight and misinformed the public,” said Sen. Carl Levin (D., Mich.), head of the subcommittee, in a press briefing Thursday.
The panel’s report, which includes 1,654 footnotes, details several episodes previously reported by The Wall Street Journal—including the doubts and reservations of the J.P. Morgan trader nicknamed the “London whale” and pressure exerted on him to boost valuations on the losing positions.
The report shows that traders at the bank’s Chief Investment Office were highly paid. Former Chief Investment Officer Ina Drew was paid a combined $29 million for 2010 and 2011. Achilles Macris, the trader in charge of the unit’s Europe operations, pulled in $31.75 million over the two years, and Bruno Iksil, nicknamed for his large trading positions, made $14.1 million.
On Friday, several J.P. Morgan officials who oversaw the trades, including Ms. Drew, will testify before the Senate panel. While Mr. Dimon won’t testify, Mr. Levin said at the Thursday press briefing that the subcommittee might hold additional hearings.
The panel will also question officials with the Office of the Comptroller of the Currency, the bank’s front-line regulator, including its head, Thomas Curry.
Sen. John McCain (R., Ariz.), ranking member of the subcommittee, said the firm “misled investors and the American taxpayer,” calling the losses a “massive failure not only by J.P. Morgan but also by the federal government.”
An OCC spokesman said in a statement Thursday that the regulator recognizes “shortcomings” in its supervision and is taking “steps to improve our supervisory process.”
The Chief Investment Office, which manages the bank’s excess cash, was a little known profit center that pulled off winning trades through the financial crisis and into 2011.
But then a group of traders in its London office, which included Mr. Iksil, started building a complicated position in indexes that track the health of a group of companies. That bet morphed into a hard-to-unwind position that led to losses starting in January 2012.
In mid-March 2012, Mr. Iksil called the positions “more and more monstrous” and referred to the values the company had booked them at as “idiotic,” according to recorded conversations released by the panel. Another trader told Mr. Iksil that the outcome of the trading would be “a big fiasco” and “big drama when, in fact, everybody should have…seen it coming a long time ago.”
Later in March, Mr. Iksil became despondent as the losses mounted. “It is over/it is hopeless now…I tell you, they are going to trash/destroy us,” he says in one message to a colleague. Ms. Drew also became alarmed as she learned that the size of the positions was growing. “Ina is freaking,” said one risk manager, referring to Ms. Drew.
Ms. Drew and lawyers for Messrs. Iksil and Macris couldn’t be reached for comment.
J.P. Morgan has acknowledged in its own reports on the trading fiasco that some expressed concerns about the portfolio as early as January 2012 and traders placed inaccurate values on certain positions as they debated the size of the losses in late March and early April.
But the Senate report alleges that traders began hiding these losses as early as January 2012 and the bank didn’t have a problem with how the positions were being treated. A May 10 internal assessment from the bank’s controller concluded that the pricing decisions were “consistent with industry practices.”
J.P. Morgan has acknowledged it didn’t have the necessary limits in place to catch the mounting problems.
But the Senate panel concludes J.P. Morgan disregarded multiple warnings. Of the five big risk measures that are tracked almost continuously at the bank, all five were breached during the first three months of 2012. From Jan. 1 through April 30, the measures were breached more than 330 times.
In February 2012, a warning system known as the Comprehensive Risk Measure showed the portfolio could incur a yearly loss of $6.3 billion, the report said. Peter Weiland, who at the time was a top risk executive called the $6.3 billion estimate “garbage” in an email to one trader. But the head of the bank’s model risk group, C.S. Venkatakrishnan, defended the model and attributed the sizable figure to the additional positions taken in the portfolio. He communicated that in an email to Ms. Drew and chief risk officer John Hogan, among others.
On April 10, when the total losses in the portfolio climbed above $1 billion for the first time due to a one day loss of $412 million, Chief Financial Officer Douglas Braunstein said to Mr. Hogan in an email: “A bit more than we thought.”
Mr. Hogan replied: “Lovely.”
The OCC told the panel that J.P. Morgan provided “material misrepresentations” about the size of the losses and denied the positions had been valued unfairly despite disputes with counterparties about prices assigned to certain positions. Mr. Dimon was aware of the disputes, the panel’s report said.
Comment from thebrackpipe: Are you kidding me? Marissa Mayer built a nursery in her office so she could bring her new son to work but she denied the entire rest of the company the ability to work from home!!! This woman is out of control!
Article below from the Daily Mail:
Yahoo CEO Marissa Mayer built a nursery in her office so she could bring her baby to work, which has angered some stay-at-home employees following her demand that all remote workers report back to the office.
The former Google Inc. executive took the demanding top job at Yahoo! when she was five months pregnant and stirred up controversy when she took only two weeks of maternity leave after giving birth last fall.
But at her own expense, Mayer built a nursery adjacent to her office to be closer to her son.
‘I wonder what would happen if my wife brought our kids and nanny to work and set em up in the cube next door?’ the husband of one remote-working Yahoo employee asked in an interview with AllThingsD‘s Kara Swisher.
Many employees are upset because they don’t have the money or clout to build their own nurseries at work. And many assume Mayer has a whole team of people, from nannies to cooks and cleaners, helping her raise her son – after all, she does have a $5 million penthouse atop the Four Seasons hotel in San Francisco in addition to her $5.2 million 5-bedroom home in Palo Alto.
But Mayer has demanded that all remote employees report to office facilities by June 1.
‘Speed and quality are often sacrificed when we work from home,’ read the memo to employees announcing the change. ‘We need to be one Yahoo!, and that starts with physically being together.’
The move will only impact a small percentage of the company’s workforce, primarily customer service representatives or staffers who work in cities where Yahoo does not have an office.
The order is described as harsh since it requires employees to ‘either comply without exception or presumably quit.’
‘Many such staffers who wrote me today are angry, because they felt they were initially hired with the assumption that they could work more flexibly. Not so, as it turns out,’ Swisher wrote in a blog posting about the change expected to impact several hundred workers.
Yahoo! declined to comment for this story, saying it won’t discuss personnel matters.
One Yahoo! employee said she worries that Mayer’s actions could set a damaging standard for working mothers across all industries.
‘When a working mother is standing behind this, you know we are a long way from a culture that will honor the thankless sacrifices that women too often make,’ a Yahoo! staffer told Swisher.
Some former Yahoo! employees agree with Mayer’s new policy, however, arguing that some stay-at-home workers were trying to ‘milk’ the system.
‘I agree with what she did,’ a former online editor at Yahoo! told Huffington Post on the condition of anonymity. ‘Many workers were milking the company… There was a ton of flexibility, and I remember several times going to ask my manager a question — and he was nowhere to be found.’
Another former Yahoo! employee recalled a similar situation at the Internet company in an interview with Business Insider.
‘For what it’s worth, I support the “no working from home” rule,’ a former online engineer told the news site. ‘There’s a ton of abuse of that at Yahoo… people slacking off like crazy, not being available, spending a lot of time on non-Yahoo projects.’
The company headquarters is located in Sunnyvale, California, near San Jose. The public corporation employs 11,500 people in more than 20 countries across the globe.
The 37-year-old Silicon Valley whiz kid was appointed the head of Yahoo in July 2012.
She was brought to the internet giant to re-energize the tech company founded by Jerry Yang and David Filo in 1995.
Though Yahoo!, which stands for Yet Another Hierarchical Officious Oracle, is one of the most visited websites on the Internet, it had started to lose its way as a company before she was brought on the team.
The upbeat blonde was seen as a breath of fresh air and morale booster.
She instituted free lunches at the company headquarters and started giving out smartphones to employees.
‘I want Yahoo to be the absolute best place to work, to have a fantastic culture. We’re working really hard right now to remind people about all the opportunities that are there,’ she said shortly after she was hired at a Fortune magazine event in November.
With all the hype over her hiring, it came as a bit of a shock when she revealed that she was pregnant the day she was appointed head of Yahoo.
Much in the vein of Facebook COO Sheryl Sandberg, Mayer has unabashedly said that her job is not her number one priority in life.
She boldly revealed that her most significant concerns were ‘God, family, and Yahoo! – in that order.’
Given that she has stated she personally prioritizes her faith and family before her job, some see it as hypocritical that she has pulled the plug on flexible working arrangements which provides work-life balance for many.
Tech companies are noted for offering creative work arrangements and were pioneers in offering the option for staff to check in remotely.
Richard Branson, head of Virgin Group, said the move by Yahoo! undermined the trust that staff would get their work done wherever, without supervision, as working is no longer 9-5.
‘This seems a backwards step in an age when remote working is easier and more effective than ever,’ Branson wrote in a blog on the Virgin website.
‘If you provide the right technology to keep in touch, maintain regular communication and get the right balance between remote and office working, people will be motivated to work responsibly, quickly and with high quality.’
Britain’s BT Group, one of the first UK companies to adopt teleworking, said about 69,000 of its 89,000 staff were equipped to work flexibly of which about 9,400 are home workers.
The company said this led to benefits like accommodation savings, increased productivity and reduced sick absence, adding 99 per cent of women returned to BT after maternity leave.
‘Our flexible working policies can also achieve a better balance between work and family commitments, which can be especially important for those with young families or caring responsibilities,’ a BT spokesman said.
Now some wonder if Yahoo! has learned a lesson and that the work from home option was too good to be true.
It remains to be seen if other tech firms will similarly yank the flexible work arrangement, which may leave many employees in the lurch who have grown accustomed to that lifestyle.
Read more: http://www.dailymail.co.uk/news/article-2284828/Yahoo-boss-Marissa-Mayer-angers-employees-building-nursery-baby-office.html#ixzz2N42gNbwW
Follow us: @MailOnline on Twitter | DailyMail on Facebook
Comment from thebrackpipe: Taking a two week maternity leave? Seriously? Hey Marissa, that’s a great example for a CEO to set – sacrifice everything or be fired. Well, it’s really too bad for Macallister (Marissa’s baby), as he will certainly end up in counseling for most of his adult life.
Article below by Lisa Belkin of the Huffington Post:
What others see as the future of the workplace, and what parents see as a most important tool for juggling home and work, Marissa Mayer apparently sees as disposable.
The CEO of Yahoo!, who made news when she took the position last summer while five months pregnant, announced through the company’s human resources arm yesterday that employees will no longer be permitted to work remotely.
“Speed and quality are often sacrificed when we work from home,” says the memo from HR director Jackie Reses, and reprinted by Kara Swisher on allthingsd.com last night. “We need to be one Yahoo!, and that starts with physically being together.”
No. It doesn’t.
It did 40 years ago, when work and home were separate realms and workers had the luxury of taking care of one at a time. More accurately, men had the ability to take care of work because they knew that women had it covered at home.
It did 20 years ago, when the tools of work were all in the office — all the files and paperwork; the office phone, with the office number, and the cord that didn’t reach beyond the cubicle wall.
I had hope for Marissa Mayer. I’d thought that while she was breaking some barriers — becoming the youngest woman CEO ever lead a Fortune 500 company, and certainly the first to do it while pregnant — she might take on the challenge of breaking a number of others. That she’d use her platform and her power to make Yahoo! an example of a modern family-friendly workplace. That she would embrace the thinking that new tools and technology deserve an equally new approach to where and how employees are allowed to work.
Instead she began by announcing that she would take just a two week maternity leave, which might have been all she needed, but which sent the message that this kind of macho-never-slowed-down-by-the-pesky-realities-of-life-outside-the-office was expected of everyone.
And now there’s this. Rather than championing a blending of life and work , she is calling for an enforced and antiquated division. She is telling workers — many of whom were hired with the assurance that they could work remotely — that they’d best get their bottoms into their office chairs, or else.
Yes, there are some jobs that can not be done remotely. But a case by case approach, identifying not only which positions CAN be flexible, but also having managers work with employees on a clear plan of what’s expected from those positions, makes far more sense than a blanket ban. Instead, Yahoo! is cracking down not only on those who work from home full-time, or those who need flexibility because they are parents; everyone is being warned that their lives don’t matter.
“For the rest of us who occasionally have to stay home for the cable guy,” Reses writes, “please use your best judgment in the spirit of collaboration. “I’d argue that it’s Mayer and Yahoo! who need to use their best judgment, and, in the spirit of collaboration should come to exactly the opposite conclusion. Putting employees back into a box is not good for Yahoo!. It is not good for workers. And it is very bad business.
Comment from thebrackpipe.com: So, Mr. Blankfein wrote in a November op-ed piece in The Wall Street Journal that tax increases are a necessary part of U.S. fiscal reform. He wrote, “I believe that tax increases, especially for the wealthiest, are appropriate, but only if they are joined by serious cuts in discretionary spending and entitlements.” I think what he meant to write was, “Tax increases are necessary but there is no way that I’m giving up MY cash.”
Article below by Liz Moyer, Steven Russolillo and Patrick McGee of the Wall Street Journal:
Goldman Sachs Group Inc. handed insiders including Chief Executive Lloyd Blankfein and his top lieutenants a total of $65 million in restricted stock just hours before this year’s higher tax rates took effect.
The New York securities firm gave 10 of its directors and executives early vesting on 508,104 shares previously awarded as part of prior years’ compensation, according to a series of filings with the Securities and Exchange Commission late Monday.
Almost half the shares were withheld to satisfy the insiders’ tax obligations, according to the filings.
Such vesting of previously granted restricted shares typically takes place in January, when Goldman also pays out bonuses for the prior year.
The early awards weren’t limited to the top officers, a Goldman spokesman said. He declined to say how many people at Goldman received the early vesting or to elaborate on the timing of the move.
Goldman’s decision is the latest illustration of the lengths large U.S. companies have gone to shield their stakeholders from the higher taxes that loomed throughout the so-called fiscal cliff standoff at the end of 2012. Congress on early Tuesday morning passed legislation that includes the largest tax increases in the past two decades.
Goldman’s move could shield its executives from increased tax rates, which will rise as high as 39.6% in 2013 from 35% last year.
Mr. Blankfein wrote in a November op-ed piece in The Wall Street Journal that tax increases are a necessary part of U.S. fiscal reform.
“I believe that tax increases, especially for the wealthiest, are appropriate, but only if they are joined by serious cuts in discretionary spending and entitlements,” he wrote.
Goldman isn’t the only U.S. company taking action in response to the higher taxes. Corporations announced more special dividends last month than in any other December since at least 1955.
Borrowing by blue-chip U.S. companies more than tripled from a year earlier in the final two months of 2012 to finance these payouts.
Warehouse retailer Costco Wholesale Corp., casino operator Las Vegas Sands Corp. LVS +0.06% and department store chain Dillard’s Inc. are among the large U.S. companies announcing accelerated or special dividends in late 2012.
The tax on dividends, about 15% in 2012 thanks to cuts that took place under President George W. Bush, will rise to as high as 20% in 2013.
At Goldman, Mr. Blankfein, President and Chief Operating Officer Gary Cohn and Chief Financial Officer David Viniar each received total vesting of 66,065 shares worth $8.4 million.
Mr. Blankfein received 2011 compensation valued at $16.2 million and Messrs. Cohn and Viniar each received $15.8 million, according to regulatory filings.
John Weinberg and Michael Evans, vice chairmen, each also received a total of 66,065 shares, according to Goldman’s disclosures this week.
Others whose restricted shares were vested on Monday included John Rogers, an executive vice president and chief of staff; Edith Cooper, executive vice president and global head of human capital management; Alan Cohen, executive vice president and global head of compliance; Gregory Palm, executive vice president and general counsel; and Sarah Smith, principal accounting officer.
Two other members of Goldman’s executive committee, Michael Sherwood and Mark Schwartz, didn’t have any shares vest on Dec. 31. Mr. Sherwo
The vesting comes at the end of a year in which Goldman shares rallied more than 40% amid reduced investor fear over the European debt crisis and a general improvement in the company’s business.
Some 483 companies announced special dividends in December, compared with 142 in the same month a year ago, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
All told, 1,056 special dividends were announced in 2012, Mr. Silverblatt said. That is up from 460 a year earlier and the most since 1973, according to Mr. Silverblatt. In the last two months of 2012, blue-chip U.S. nonfinancial companies sold $178 billion of bonds. That compares with $60.6 billion a year earlier, according to data tracker Dealogic.
Mr. Blankfein and other corporate chiefs had pushed Washington lawmakers to find a solution that would prevent a consumer spending slowdown that threatened to send the economy back into recession.
In a series of postings Wednesday on Twitter, Mr. Blankfein praised Congress’s action. “This agreement is a step forward to injecting growth and investor confidence into the U.S. economy.”
Comment from thebrackpipe.com: Well, well, well… let’s have a look at who is involved here – ‘Bank of America will pay the most to borrowers as part of the deal — nearly $8.6 billion. Wells Fargo will pay about $4.3 billion, JPMorgan Chase roughly $4.2 billion. Citigroup will pay about $1.8 billion and Ally Financial will pay $200 million. Those totals do not include $5.5 billion that the banks will reimburse federal and state governments for money spent on improper foreclosures.’
Article from the Associated Press:
WASHINGTON (AP) — U.S. states reached a landmark $25 billion deal Thursday with the nation’s biggest mortgage lenders overforeclosure abuses that occurred after the housing bubble burst.
The deal requires five of the largest banks to reduce loans for about 1 million households at risk of foreclosure. The lenders will also send checks of $2,000 to about 750,000 Americans who were improperly foreclosed upon. The banks will have three years to fulfill the terms of the deal.
It’s the biggest settlement involving a single industry since a 1998 multistate tobacco deal.
Federal and state officials announced at a news conference that 49 states had joined the settlement. Oklahoma announced a separate deal with the five banks.
The settlement ends a painful chapter that emerged from the financial crisis, when home values sank and millions edged toward foreclosure. Many companies processed foreclosures without verifying documents. Some employees signed papers they hadn’t read or used fake signatures to speed foreclosures — an action known as robo-signing.
Under the deal, the states said they won’t pursue civil charges related to these types of abuses. Homeowners can still sue lenders in civil court on their own, and federal and state authorities can pursue criminal charges.
“There were many small wrongs that were done here,” said U.S. Housing and Urban Development Secretary Shaun Donovan. “This does not resolve everything. We will be aggressive about going after claims elsewhere.”
Reducing loan principal will help some homeowners who are current on their payments but are “underwater,” meaning they owe more than their homes are worth.
But consumer advocates and housing activists said the deal is flawed because it covers only a fraction of at-risk homeowners. Critics note that the settlement will apply only to privately held mortgages issued from 2008 through 2011.
Banks own about half of all U.S. mortgages — roughly 30 million loans. Those owned by mortgage giants Fannie Mae and Freddie Mac are not covered by the deal.
“The deal announced today is too small,” said Pico National Network, a faith-based group that is active on housing issues. “It falls far short of providing real justice for homeowners and American families.”
Economists also cited the size of the deal: Some said it was hardly enough to have much impact on the troubled housing market.
The settlement will be overseen by Joseph A. Smith Jr., North Carolina’s banking commissioner. Lenders that violate the deal could face $1 million penalties per violation and up to $5 million for repeat violators.
About $10 billion of the settlement total will be used to reduce mortgage payments for underwater homeowners. Paul Diggle, an economist at Capital Economics, said that’s a “drop in the ocean,” considering that 11 million borrowers are underwater “to the tune of $700 billion.”
Mark Vitner, a senior economist at Wells Fargo Securities, said the settlement helps the housing market in the long run because it allows banks to proceed with millions of foreclosures that have been stalled. Many lenders have refrained from foreclosing on homes as they awaited the settlement.
“We’ve got a lot of issues to work our way through in the housing market,” Vitner said. “What thissettlement does is allow that process to get started.”
Bank of America will pay the most to borrowers as part of the deal — nearly $8.6 billion. Wells Fargo will pay about $4.3 billion, JPMorgan Chase roughly $4.2 billion. Citigroup will pay about $1.8 billion and Ally Financial will pay $200 million. Those totals do not include $5.5 billion that the banks will reimburse federal and state governments for money spent on improper foreclosures.
The deal also ends a separate investigation into Bank of America and Countrywide for inflating appraisals of loans from 2003 through most of 2009. Bank of America acquired Countrywide in 2008.
“The settlement includes far reaching relief that will help many of our customers and complement our already extensive efforts to improve our borrower assistance efforts and servicing processes,” JPMorgan Chase said in a statement.
Under the deal, banks must make foreclosure their last resort. They are also barred from foreclosing on a homeowner who is being considered for a loan modification.
The banks and U.S. state attorneys general agreed to the deal late Wednesday after 16 months of contentious negotiations.
New York and California came on board late Wednesday. California has more than 2 million “underwater” borrowers, whose homes are worth less than their mortgages. New York has some 118,000 homeowners who are underwater.
In addition to the payments and mortgage reductions, the deal promises to reshape long-standing mortgage lending guidelines. It will make it easier for those at risk of foreclosure to make their payments and keep their homes.
Those who lost their homes to foreclosure are unlikely to get their homes back or benefit much financially from the settlement.
Some critics say the proposed deal doesn’t go far enough. They have argued for a thorough investigation of potentially illegal foreclosure practices before a settlement is hammered out.
Under the deal:
— Roughly $1.5 billion for direct payouts, in the form of $2,000 checks, for about 750,000 Americans who were unfairly or improperly foreclosed upon; another $3.5 billion will go directly to states.
— At least $10 billion for reducing mortgage amounts.
— Up to $7 billion for other state homeowner programs.
— At least $3 billion for refinancing loans for homeowners who are current on their mortgage payments but who are underwater.
The deal is subject to final approval by a federal judge.
Associated Press Writers Michael Virtanen in Albany, N.Y., Pallavi Gogoi in New York and Christopher S. Rugaber and Marcy Gordon in Washington contributed to this report.
Comment from thebrackpipe.com: Oh, now this is just precious. Douchebaggery at it’s finest – “UBS’s attempts to rig the rates mean that every version of Libor and other benchmarks in which UBS was involved “is at risk of having been improperly influenced” between January 2005 through 2010, the FSA, the British regulator, said Wednesday.
According to regulators, dozens of UBS employees, seeking to bolster their trading profits and to improve outside perceptions of the bank’s health, tried at least 2,000 times to manipulate a variety of benchmark interest rates, often with the knowledge or even encouragement of senior managers at the bank. The FSA called the efforts “routine and widespread.”
From the WSJ.com:
Two former traders at UBS were charged in the U.S. on Wednesday with conspiring to manipulate a key global interest rate as officials around the world reached a $1.5 billion settlement with the bank.
The former traders, Tom Alexander William Hayes, 33 years old, of England, and Roger Darin, 41, of Switzerland, were both charged with conspiracy, the Department of Justice said. Mr. Hayes was also charged with wire fraud and price fixing.
UBS’s unit in Japan pleaded guilty to fraud and admitted that it manipulated the London Interbank Offered Rate, or Libor, officials said.
U.S., U.K. and Swiss authorities alleged a vast conspiracy led by UBS to rig interest rates tied to trillions of dollars in loans and other financial products, indicating the practice was far more pervasive than previously known.
UBS agreed to pay about $1.5 billion to settle charges against the Swiss bank, and a unit in Japan where much of the wrongdoing occurred pleaded guilty to criminal fraud. U.S. prosecutors also filed criminal conspiracy charges against two former UBS traders allegedly at the heart of the scheme.
UBS acknowledged the regulators’ charges. “We are taking responsibility for what happened,” UBS Chief ExecutiveSergio Ermotti said in an interview. He said all employees with any connection to the scandal have left UBS, including 36 over the past year. As a result of the fine, the bank expects to report a loss for the fourth quarter of up to 2.5 billion Swiss francs ($2.7 billion).
Regulators described the alleged illegality as “epic in scale,” with dozens of traders and managers in a UBS-led ring of banks and brokers conspiring to skew interest rates to make money on trades. The six-year effort “seriously compromised” the integrity of financial markets, said the U.S. Commodity Futures Trading Commission.
Traders openly boasted to each other about their prowess at moving the influential rates up or down at their whims. “Think of me when yur on yur yacht in Monaco,” one broker said in an electronic chat in 2009 with the UBS trader at the center of the alleged conspiracy, according to the Justice Department. The broker congratulated the trader on “getting bloody good” at rate-rigging, regulators said.
The ringleader, who wasn’t named in the settlement documents, was 33-year-old Thomas Hayes, according to people familiar with the investigation. Mr. Hayes was charged separately by U.S. prosecutors Wednesday, along with another former UBS trader, 41-year-old Swiss national Roger Darin. Neither Mr. Hayes nor Mr. Darin could be reached for comment Wednesday.
Mr. Hayes, a star trader who made nearly $260 million for the Swiss bank in the three years he worked there between 2006 and 2009, was open about his rate-rigging, prosecutors said. Libor “is too high cause I have kept it artificially high,” he allegedly boasted in an electronic chat in 2007.
UBS isn’t facing criminal charges. Justice Department officials said they decided not to charge the Zurich-based company, fearing such a move could endanger its stability.
The settlement is a landmark moment in a sprawling regulatory probe that began more than four years ago after The Wall Street Journal published an article questioning the credibility of Libor.
“Great article in the WSJ today about the Libor problems,” a UBS manager wrote to a trader, according to the U.K. Financial Services Authority. Two hours later, the regulator said, the manager asked the trader to boost the bank’s Libor submissions in an apparent effort to rig the rate.
The scandal over attempted manipulation of Libor and other rate benchmarks, which determine everything from the values of complex derivatives to the monthly interest rates many people pay on their mortgages, has been brewing for years. A $450 million settlement over Libor-rigging at Barclays PLC last summer led to the ouster of the bank’s chairman and chief executive.
Wednesday’s deal with UBS paints a picture of wrongdoing that was more widespread. That is one reason the penalty is more than three times the size of Barclays’s.
The settlement could signal large settlements at other banks still under investigation. The deal also is valuable ammunition for dozens of lawsuits filed in U.S. courts against banks by aggrieved customers, investors and others, seeking billions of dollars for alleged Libor manipulation.
Fannie Mae and Freddie Mac, the two U.S. mortgage giants, might have lost more than $3 billion as a result of banks’ alleged Libor manipulation, according to an internal report by a federal watchdog that was reviewed by the Journal. The unpublished report from the inspector general for the Federal Housing Finance Agency urges Fannie and Freddie to consider suing the banks involved in setting Libor.
UBS’s attempts to rig the rates mean that every version of Libor and other benchmarks in which UBS was involved “is at risk of having been improperly influenced” between January 2005 through 2010, the FSA, the British regulator, said Wednesday.
According to regulators, dozens of UBS employees, seeking to bolster their trading profits and to improve outside perceptions of the bank’s health, tried at least 2,000 times to manipulate a variety of benchmark interest rates, often with the knowledge or even encouragement of senior managers at the bank. The FSA called the efforts “routine and widespread.”
Traders dangled financial rewards, such as cash or favorable trading opportunities, to coax employees at other financial institutions to participate in the attempted manipulation. During one 18-month period, UBS was paying one firm of outside brokers £15,000 ($24,363) every three months to help the Swiss bank work with rival lenders to manipulate the rates. U.S. and British regulators called it clear evidence of collusion.
More bankers likely will be charged. British fraud authorities last week arrested three individuals, including Mr. Hayes, and are readying charges for next year against other people enmeshed in the case, according to people familiar with the case.
About a dozen banks remain under investigation, and a string of settlements is expected in coming months and years, along with more arrests, according to people close to the world-wide probe.
Benchmarks like Libor and the euro interbank offered rate, or Euribor, are calculated every day based on estimates from banks about how much it would cost them to borrow money from other banks. The estimates are compiled into an average, with the highest and lowest bunches of estimates excluded.
Libor and Euribor are vital cogs in the global financial system. Interest rates on hundreds of trillions of dollars of loans and other financial contracts are pegged to the benchmarks. Central banks rely on them to help determine their monetary policies.
Banks have incentives to skew the rates. Investors closely scrutinize banks’ borrowing costs, and rising costs signal financial distress. UBS and Barclays have acknowledged submitting artificially low Libor readings in order to damp concerns about their health during the financial crisis. British regulators have recommended a variety of steps to overhaul how Libor is calculated.
Traders make bets on how rates will move, and millions of dollars in profits can rest on a tiny movement in Libor.
The bulk of UBS’s efforts were concentrated on the Japanese yen version of Libor. Mr. Hayes used a three-pronged strategy to make sure his bets on Yen Libor were profitable, regulators said.
He rigged UBS’s submissions to the panel that calculated the rate, colluded with traders at four other banks on that panel and bribed individuals at outside firms of brokers, regulators said.
The role played by these so-called interdealer brokers was crucial in helping the small band of traders rig a global interest rate, according to regulators. Banks use these brokers to help decide their Libor submissions.
One broker emailed how the honest banks on the panel were being guided to submit an artificially high rate, saying: “hopefully the sheep will just copy,” regulators said.
UBS tried to enlist employees at six brokerage firms to act as middlemen to coordinate the submissions of Libor data across multiple banks. Those firms include ICAP PLC, R P Martin Holdings Ltd., and Tullett Prebon, according to a person familiar with the matter.
ICAP and R P Martin representatives declined to comment. Charlotte Kirkham, a Tullett spokeswoman, said that the firm didn’t help UBS manipulate rates and none of the broker’s employees have been disciplined in connection with Libor.