UBS's settlement sets a troubling precedent


The details about the expected $1.5 billion settlement between UBS and various regulatory and enforcement bodies are still trickling out, but there is a sense of just how serious and sprawling the issues are.

The fact that a unit of UBS has pled guilty to one criminal charge suggests that prosecutors had the bank in a corner, as such pleas are virtually unheard of. The material that is trickling shows a lot of manipulation that includes outright cash payments.

In September 2008, an unidentified UBS trader told a broker that he wanted to "do one humongous deal with you," according to the FSA. "I'll pay you, you know, $50,000, $100,000…whatever you want…I'm a man of my word."

The $1.5 billion settlement is also surprising because the bank received some immunity agreements and was said to be cooperating with authorities.

In the end, you have to wonder what this means for U.S. banks such as Citigroup, JPMorgan Chase, Bank of America and possibly others. We now have large fines and settlement agreed to by Barclays and UBS. RBS could be coming soon. I expect a slew of settlements over the next few months.

This is another black eye for UBS, and the CEO is urging all employees to think about the company's brand before engaging in controversial activity. This follows the $2.3 billion rogue trading scandal at UBS playing out now in courts. UBS expects to report a net loss of up to $2.7 billion in the fourth quarter of the year because of the costs related to Libor and other legal matters. It will be interesting to see if U.S. banks start to reserve against possible losses due to the Libor mess.

For more:
- here's a look at some of the emails
- here's a Reuters article

Related article:
UBS Libor settlement hits $1.6B