In 2008, UBS lost $38 billion on credit derivatives and sub-prime debt; while it may have learned some lessons about the importance of internal controls from the episode, it was in the news again in 2009 when the US government showed UBS bankers were colluding with US nationals to avoid taxes and fined it $780 million. Even that, however, didn’t seem to help change the control systems in UBS since, in 2011, it was paying a 29.7 million pound fine to the UK Financial Services Authority (FSA) for “significant control breakdowns” that allowed Kweku Adoboli to lose $2.3 billion through a series of rogue trades. And the bank has just been fined $1.5 billion (that’s 46% of FY11 pre-tax profits) for its role in manipulating Libor rates on the basis of which $300 trillion worth of transactions are transacted each year. Given the likely suits from customers and others, UBS has said it expects to suffer a loss of $2-2.5 billion in Q4 on account of the provisions it needs to make for possible litigation and other regulatory action—UBS is under scrutiny for possible manipulation of Hong Kong rates as well.
If that doesn’t put to rest the arguments by the anti-Dodd-Frank lot who argue financial regulation is getting stifling, nothing ever will since the flagrant and repeated violations by UBS make it clear regulations, to the extent they were in place, were easily circumvented. As for oversight within the bank, the Libor investigations show UBS traders were regularly paying brokers as much as 15,000 pounds a quarter to manipulate rates—the UK FSA probe said at least 45 bank employees including managers knew of the practice, and around 70 more people were included in open chats and messages on manipulating Libor.
Nor are the violations restricted to UBS. If UBS paid a massive $1.5 billion as a fine, HSBC paid an even higher $1.92 billion fine (given HSBC’s bigger book, though, this was 8.5% of FY11 pre-tax profit) for money-laundering activities, Standard Chartered paid $667 million for violating US sanctions to route payments to/from Iran, ING paid $619 million for the same violations, Goldman Sachs paid $577 million for its role in selling toxic derivatives, Credit Suisse $536 million for Iran sanctions, ABN Amro paid $500 million for the same crime … the UBS probe, investigators say, is likely to rope in another 8-10 banks since such large manipulation couldn’t have been