UBS, Barclays Dodge $4.3Billion EU Fines for Rate Rigging

UBS AG, Switzerland’s biggest bank, and Britain’s Barclays Plc escaped $4.3 billion in European Union antitrust penalties, vindicating their strategy to reveal to the watchdog collusion to rig benchmark interest rates.

UBS, based in Zurich, dodged a 2.5 billion-euro ($3.4 billion) fine, while London-based Barclays avoided a 690 million-euro penalty, the European Commission said in a statement today. Six companies were fined a record 1.7 billion euros for rigging euro and yen interest rate derivatives.

Offering leniency to companies that are first to bring collusion to light is the “main and most effective tool to detect illegal cartels,” the Brussels-based European Commission said. As regulators in the U.K., Switzerland, the U.S. and Asia also investigate potential attempts to rig the $5.3 trillion-a-day foreign exchange market, the prospect of avoiding or reducing fines may spur a rush to cooperate, said Christopher Wheeler, an analyst at Mediobanca SpA in London.

“In the case of foreign exchange, you may have noticed that all the banks have been very, very active in trying to get in front of the regulators as quickly as possible,” Wheeler said in an interview on Bloomberg Television today. “Obviously they see the benefits of actually cooperating.”

UBS said in October it has been conducting an internal probe and taking measures against employees as it cooperates with the investigation into currency markets. Barclays suspended three current traders, including a chief dealer in London, amid the foreign-exchange probe, a person with knowledge of the decision said last month.

Global Probe

UBS rose 0.5 percent to 16.79 Swiss francs in Zurich trading, bringing its gain this year to 18 percent. Barclays declined 1.3 percent in London to 262.80 pence.

Regulators around the world have been probing whether more than a dozen firms, including JPMorgan Chase & Co. and Deutsche Bank AG, colluded to manipulate benchmark interest rates to mask their true cost of borrowing.

UBS paid about $1.5 billion to U.S., U.K. and Swiss regulators last year for trying to rig the London interbank offered rate, while Barclays paid 290 million pounds ($475 million) to resolve U.S. and U.K. probes into the matter. Barclays’s Chairman Marcus Agius and Chief Executive Officer Robert Diamond left after the penalty.

Deutsche Bank

In the EU probe, Deutsche Bank was fined 725 million euros, the biggest single penalty. Societe Generale SA was fined 446 million euros and Royal Bank of Scotland Group Plc must pay 391 million euros, the EU said in a statement in Brussels. All three banks received reductions of at least 5 percent and up to 50 percent on some portions of their penalties for cooperating.

Only JPMorgan failed to get any discount. The New York-based bank was fined 80 million euros for colluding to rig derivatives based on yen libor. JPMorgan and two other banks, HSBC Holdings Plc and Credit Agricole SA, pulled out of the euribor portion of the settlement.

The combined fines for manipulating the yen London interbank offered rate and Euribor are the largest-ever EU cartel penalties.

While the global fines for rate-rigging reached $6 billion today, the cost may climb as banks face more investigations and lawsuits worldwide. EU Competition Commissioner Joaquin Almunia said the penalties won’t be “the end of the story” as regulators probe additional cases linked to Libor and currency trading.

Detecting Cartels

UBS revealed the existence of cartels in yen interest rate derivatives, such as yen Libor and the Euroyen Tokyo interbank offered rate, or Tibor. The Swiss bank received full immunity for its participation in five of seven infringements the EU uncovered in the period from 2007 to 2010, the commission said. The company declined to comment on the settlement.

Citigroup Inc., based in New York, avoided an extra 55 million-euro penalty for cooperating on one of the yen infringements in which it participated, the commission said. The bank was fined 70 million euros for two other instances.

The cartel on euro interest-rate derivatives, such as the euro interbank offered rate, or Euribor, operated between September 2005 and May 2008, the commission said. Barclays received immunity for revealing the existence of the cartel, in which it participated for 32 months, according to the statement.

Barclays said in a statement it voluntarily reported the Euribor conduct to the commission and fully cooperated with the investigation.

“Because they are secret, cartels are very difficult to detect and prove,” Almunia said at a press conference in Brussels today. “Providing such incentives to companies that choose to prove the existence of a cartel is simply indispensable for any public authority that is serious about detecting and sanctioning cartels.”

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