UBS AG to Win Immunity from EU? - Analyst Blog

Swiss-based UBS AG UBS may successfully pen an immunity deal with European Union EU antitrust authorities, Bloomberg reported. The deal, if entered would safeguard the Swiss bank from incurring fines for manipulation of foreign exchange currency rates.

UBS AG is the first bank to cooperate with EU authorities in the currency probe, after being exempted from a fine worth $3.45 billion (€2.5 billion) for divulging information related to the existence of the cartel in manipulation of benchmark interest rates.

Notably, last year, EU antitrust officials penalized 8 major international banks with the total penalty amount of $2.3 billion (€1.7 billion) for alleged fixing of the London interbank offered rate (LIBOR) and the Euro interbank offered rate (EURIBOR). Another European bank – Barclays PLC BCS was also rewarded with immunity last year.

EU authorities will reward UBS AG with immunity bearing in mind the bank's cooperation with investigators to provide information about other banks' involvement in the formation of cartels for fixing rates. However, whether full immunity will be granted or not by the EU will depend upon the intensity of cooperation after the investigation is completed.

Moreover, as per the EU immunity rules, companies which pressurized other firms to become a part of the cartel or disallowed them to exit do not qualify for immunity from fines. However, these companies are still eligible for deductions in antitrust penalties.

Further, the leniency program initiated by the EU will not spare UBS AG, if found guilty, from penalties to be charged by the U.K. Financial Conduct Authority and some U.S. authorities.

However, Andreas Schwab, the European lawmaker who advocates lawsuits over price-fixing, opposed the leniency program in strong words. Schwab stated that the EU's competition arm should initiate its own investigations rather than providing immunity. He added that though the immunity seekers are relieved from paying fines, they should be liable for paying damages to affected parties.

The EU authorities are investigating banks that have disobeyed EU laws forbidding cartels and collusive activities. Therefore, by providing immunity, authorities are encouraging corporate wrongdoers to report such fraudulent actions.

Manipulation of currency rates by major financial institutions triggered thorough investigations by regulatory bodies across Europe, Asia and America. Such investigations have cost several major global banks billions of dollars in settlements. Alongside, we apprehend such scandals to dent the financials of these banks over the long term.

Notably, Swiss authorities became the foremost regulatory body to initiate a formal investigation into foreign exchange rate rigging. Banks under scrutiny include UBS AG, Credit Suisse Group AG, Julius Baer and Zurcher Kantonalbank, JPMorgan Chase & Co. JPM, Citigroup Inc. C, Barclays and The Royal Bank of Scotland Group plc.

Therefore, burdened under the pressure of such investigations, banks have terminated a number of traders along with the closure of electronic chat rooms – the mode of communication between various banks. Moreover, such probes are negatively impacting the markets as evident from the downturn in foreign exchange trading volumes in recent months.

Regulatory authorities are investigating scandals related to the heightening foreign exchange rate fixing and are determined to put forward a landmark judgment to terminate such shrewd practices in the future, bring justice to the sufferers and punish the wrongdoers. While settlement of such issues will put to rest a long-drawn investigation and bring reprieve to the banks, this comes as a huge blow to their financials.