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UBS Says U.S. Is Probing Possible Libor Rate Manipulation

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UBS Says U.S. Is Probing Possible Libor Rate Manipulation
The UBS AG logo is displayed at the company's headquarters in Zurich. Photographer: Gianluca Colla/Bloomberg

UBS AG, Switzerland’s biggest bank, said it received subpoenas from U.S. authorities investigating possible attempts to manipulate the setting of the London interbank offered rate.

The company received subpoenas from the U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission and the U.S. Department of Justice, Zurich-based UBS said in its 2010 annual report published today. The bank also received an order to provide information to the Japan Financial Supervisory Agency concerning “similar matters,” it said.

“UBS understands that the investigations focus on whether there were improper attempts by UBS, either acting on its own or together with others, to manipulate Libor rates at certain times,” the bank said. “UBS is conducting an internal review and is cooperating with the investigations.”

Libor rates are set daily by the British Bankers’ Association, based on data it gets from a panel of banks on what it would cost them to borrow funds for various periods of time and in different currencies. The validity of Libor, a benchmark for more than $350 trillion of derivatives and corporate bonds, was questioned during the credit crisis as banks became wary of lending to each other because of mounting losses.

UBS didn’t say what time period the Libor investigation is focused on. Serge Steiner, a spokesman for the bank, declined to comment beyond the statement in the report.

Funding Difficulties

Bank for International Settlements officials said in 2008 after a report on the Libor-setting process that they couldn’t rule out that rates may have been manipulated. The March report said if there were attempts to manipulate rates, the procedure whereby the highest and lowest estimates are stripped out probably “minimized their impact.”

The London-based BBA said three months later that it would increase the number of banks setting Libor and consider adding a second daily survey to reflect U.S. trading.

“We are committed to retaining the reputation and integrity of BBA Libor,” the BBA said in an e-mailed statement today. “We observe rigorous standards in our scrutiny and governance of the Libor mechanism, and work with the industry to ensure their continued full confidence in one of its most accurate and reliable benchmarks.”

UBS, whose default-insurance costs rose 919 percent between July 2, 2007 and April 15, 2008 as it racked up $38 billion of writedowns and losses, quoted dollar-borrowing costs that were lower than its rivals on 85 percent of the days during that period, Bloomberg data shows.

Banks routinely misstated borrowing costs to the BBA to avoid the perception they faced difficulty raising funds as credit markets seized up, turning Libor into “a lie,” Tim Bond, head of asset allocation at Barclays Capital, a unit of Barclays Plc, said in a Bloomberg Television interview in May 2008.

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