Friday, December 14, 2012

UBS admitting guilt for manipulating rates not enough to restore reputation...needs to provide ultra transparency

Reuters reports that UBS will be the first global bank in over a decade to admit guilt.  In this case, for manipulating benchmark interest rates including Libor and Tibor.

The head of UBS, Axel Weber, should be congratulated for being willing to admit his bank engaged in illegal behavior.

The next step in rehabilitating UBS' image is for Mr. Weber to have UBS adopt ultra transparency and disclose on an ongoing basis its current global asset, liability and off-balance sheet exposure details.

Regular readers know that providing ultra transparency has a number of benefits for UBS.

First, it is a definitive statement that UBS has nothing to hide.  Providing ultra transparency shows that UBS has recognized all the losses associated with its legacy assets.

Second, it brings about a culture change.  Sunlight is the best disinfectant and UBS bankers know that if they misbehave, like trying the manipulate a benchmark interest rate, the market will find out about it.

Third, it rebuilds market confidence in UBS.  When market participants can independently assess the risk of a bank, they trust this assessment.  Having cleaned up its balance sheet and complied with the Swiss bank regulator's higher capital requirements, UBS should be well positioned to benefit from this confidence in UBS.

Regular readers also know that the failure by UBS to provide ultra transparency is effectively a large red flag that says UBS still has something to hide either in the way of legacy assets or misbehavior.

UBS will admit to criminal wrongdoing by its Japanese arm, where one of the Swiss bank's traders manipulated yen Libor and euro yen contracts, to secure a $1-billion (618.5 million pounds)-plus settlement with regulators, people familiar with the matter said on Friday. 
Japan's financial regulator last December ordered UBS's Japanese securities arm to suspend Tibor- and Libor-related derivatives trading for a week after a probe found a former trader attempted to influence the Tokyo interbank offered rate. 
UBS, which declined comment, is expected to pay $1 billion or more as early as Monday to settle the interest rate rigging charges, the sources said. The UBS settlement could include manipulation of Libor rates in currencies other than yen, after clues to UBS's alleged central role in the Libor conspiracy were included in documents filed earlier this year by the Canadian Competition Bureau, which investigates anti-competitive activity....

The spectre of criminal charges against UBS comes as a blow to the bank's efforts to focus on its private bank, which caters to the financial needs of the world's wealthy. UBS is in the process of pulling out of riskier sectors, including some in fixed income, in order to reassure customers and shareholders....

Admitting to criminal wrongdoing can be fatal for a bank, as it can lose its licence, and authorities are wary of pushing big banks to the brink. By admitting to the charge against its Japanese subsidiary, UBS is stopping short of admitting to wrongdoing at a group level.... 
The bank had hoped for a softer touch from regulators by cooperating in industry-wide probes and was surprised by the size of the expected settlement, they added. 
The criminal probe is not the first in recent UBS history. In 2009 it settled a messy U.S. investigation into tax evasion by admitting it had helped wealthy Americans evade and cheat on their taxes.

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