STOCK MARKET WATCH -- Monday, 24 December 2012

[Demeter]

19. Lessons learnt from $1.5bn settlement

http://www.ft.com/intl/cms/s/0/8337c48c-4b9c-11e2-887b-00144feab49a.html#axzz2Fy0Yrlye

UBS this week became the first major financial institution to enter a guilty plea to US authorities in two decades – and the first to have two former traders issued with criminal charges as part of the global probe into interest-rate manipulation. But in relative terms, the plea by UBS’s Japanese subsidiary and the $1.5bn fine the Swiss bank must pay to settle allegations that it had rigged Libor and other lending rates was a bargain. It could have paid more, had it not won partial immunity by being the first bank to co-operate with the authorities. The UK’s Financial Services Authority, for example, gave it a 20 per cent discount on its fine, reducing it to £160m, while the bank disclosed last year that it had signed a partial leniency agreement with the US Department of Justice’s antitrust division. The total settlement of $1.5bn – with US, UK and Swiss authorities – sends a strong message to other banks under investigation, including Royal Bank of Scotland . Stephen Hester, RBS chief executive, says the bank is hoping to conclude a settlement by the end of February, and people familiar with the talks say it expects to pay more than the $450m fine paid by Barclays – but less than UBS.

...The US government’s investigation was helped by UBS turning over millions of emails, electronic messages and recorded phone calls, as well as making numerous employees’ available for questioning.

“The stakes are getting so high you have to wonder what public goal is being served,” said one US defence lawyer. The DoJ “can’t make cases without substantial co-operation by companies.” But he questioned the benefit of co-operation if a company ultimately takes a guilty plea.

Companies, especially those in regulated industries like banking, generally don’t have much of a choice, lawyers say. If they don’t co-operate, they could face harsher penalties or risk losing their licences. But when co-operation results in what lawyers say are draconian penalties, it has some legal advisers rethinking their advice. “It draws an interesting focus on whether financial institutions will have an incentive to want to self-report,” notes another US defence lawyer.

Lawyers point to the $1.9bn penalty HSBC paid to settle allegations relating to money-laundering and breaches of sanctions as a measure that penalties are getting too large. “If you can’t fight, you have to pay ransom,” says one lawyer. He states that he has advised companies not to self-report when they find and fix wrongdoing. He recalls one chief executive saying he agreed with him, “but you’ve got to understand: for the outside board members it’s the company’s money or their reputation. Which do you think they’re going to pick?”

Conversely, others on Capitol Hill have pressed the DoJ to be tougher on companies, especially when they have a long-running pattern of misconduct. In 2009, UBS paid $780m to the DoJ and admitted helping US citizens avoid paying taxes. UBS’s assistance, though, was not absolute. The FSA’s statement adds that the bank had not co-operated enough to qualify for a full 30 per cent discount, while US regulators took into account the fact that UBS didn’t fully co-operate until the US probe had been under way two years. They also note that the improper conduct continued despite the federal probe....

DOESN'T SOUND LIKE ANYONE LEARNED ANYTHING