UBS to pay $1.5 billion over rate-rigging scandal

  JOHN HEILPRINGENEVA -- Swiss bank UBS agreed Wednesday to pay $1.5 billion in fines for trying to manipulate a key interest rate that affects borrowers around the world.

The settlement with U.S., British and Swiss regulators caps a tough year for the company and the reputation of the global banking industry. The fine on UBS, which will also see two former traders charged with conspiracy in the U.S., is triple the amount that British bank Barclays PLC agreed to pay in June to settle similar charges.

And it comes a week after HSBC agreed to pay nearly $2 billion to settle allegations of laundering money for Mexican drug cartels and countries under U.S. embargoes, such as Iran.

UBS, Switzerland's largest bank, said some of its employees tried to rig the LIBOR rate - short for London Interbank Offered Rate - in several currencies. The rate is set daily using information that banks provide and is used to price trillions of dollars in contracts around the world, including mortgages and credit cards.

Some UBS traders voluntarily submitted - or pressured others to submit - inaccurate data to gain some financial advantage.

The bank's Japan unit, where much of the manipulation took place, entered a plea to one count of wire fraud in an agreement with the U.S. Justice Department.

The Justice Department said two former UBS senior traders, Tom Alexander William Hayes, 33, of Britain, and Roger Darin, 41, of Switzerland, will be charged with conspiracy, while Hayes also will be charged with wire fraud in New York federal court. Justice Department officials said they believed the two men were in Britain and Switzerland, and would be seeking their extradition.

UBS will pay $1.2 billion of its fine to the Justice Department and U.S. Commodity Futures Trading Commission. The CFTC will get $700 million, the largest fine it ever ordered. The remaining $300 million will go to regulators in Britain and Switzerland.

As a result of the fines, litigation, unwinding of real estate investments, restructuring and other costs, UBS said it expects to lose between 2 billion and 2.5 billion Swiss francs ($2.2 billion to $2.7 billion) in the fourth quarter. Nevertheless, the Zurich-based bank maintained that it "remains one of the best capitalized banks in the world."

UBS shares closed down 0.3 percent at 15.20 francs on the Zurich exchange.

The LIBOR scandal is likely to make headlines again in coming months. Other big global banks are also being investigated in the LIBOR scandal and are expected to be fined.

The UBS penalty is more than triple the $450 million in fines imposed by American and British regulators in June on Barclays. The scandal led to the departure of Chief Executive Bob Diamond.

UBS said some of its personnel had "engaged in efforts to manipulate submissions for certain benchmark rates to benefit trading positions" and that some employees had "colluded with employees at other banks and cash brokers to influence certain benchmark rates to benefit their trading positions."

Britain's financial regulator called the misconduct by UBS "extensive and broad," with the rate-fixing carried out from UBS offices in London and Zurich.

Different desks were responsible for different rate submissions. At least 2,000 requests for inappropriate submissions were documented. An unquantifiable number of oral requests, which by their nature would not be documented, were also made, the U.K.'s Financial Services Authority said.

"Manipulation was also discussed in internal open chat forums and group emails, and was widely known," the FSA said. "At least 45 individuals including traders, managers and senior managers were involved in, or aware of, the practice of attempting to influence submissions."

Joe Rundle, head of trading at London-based ETX Capital, said the case exposes "just how brazen and arrogant" the UBS traders were while collaborating with "corrupt external brokers."

Sergio Ermotti, who was appointed CEO of UBS in November 2011 in the wake of a major trading scandal, said the misconduct does not reflect the bank's values or standards.

In an interview with Swiss TV, Ermotti said the bank let go of 36 employees involved in the scandal over the past 18 months and learned some clear lessons from it - mainly that "we had to strengthen our controls."

"We are on our way to finding solutions to some of the problems and there are some other items that remain unresolved," he told the German-speaking public broadcaster SRF. "We have to recognize our failures and learn from them, but also look ahead."

With more than 2.2 trillion Swiss francs ($2.4 trillion) in invested assets, UBS is one of the world's largest managers of private wealth assets. At last count, the bank had 63,745 employees in 57 countries and said it aims for a headcount of 54,000 in 2015.

Along with Credit Suisse, the second-largest Swiss bank, UBS is on the list of the 29 "global systemically important banks" that the Bank for International Settlements - the central bank for central banks - considers too big to fail.

It's not the first time that UBS has fallen afoul of regulators. In 2009, U.S. authorities fined UBS $780 million for helping U.S. citizens avoid paying taxes.

The U.S. government has since been pushing Switzerland to loosen its rules on banking secrecy. The country has been trying to shed its image as a tax haven, signing deals with the U.S., Germany and Britain to provide greater assistance to foreign tax authorities seeking information on their citizens' accounts.

Ermotti has called Switzerland's tax disputes with the U.S. and some European nations "an economic war" putting thousands of jobs at risk.

In September 2011, UBS revealed that unauthorized trades in London by a 32-year-old employee, Kweku Adoboli, had cost it more than $2 billion, the biggest ever fraud at a bank in Britain.

Britain's financial regulator fined UBS, saying its internal controls were inadequate to prevent Adoboli, a relatively inexperienced trader, from making vast and risky bets. Adoboli has been sentenced to seven years in prison.

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Zuckerberg: Facebook tops 1 billion users

  Eyewitness NewsSAN FRANCISCO -- Facebook has topped 1 billion users, but the past few months have not been easy.

CEO Mark Zuckerberg says that the company is going through a bit of a rough patch following its rocky initial public offering.

Zuckerberg updated his Facebook status on Thursday to announce that the social networking site has more than 1 billion active users each month. He thanked users and said that he is committed to making Facebook better.

The Menlo Park, Calif.-based company has had a difficult time of late. There were trading glitches the day it went public in May and concerns since then about its revenue potential. It's also facing lawsuits from disgruntled shareholders.

Zuckerberg said in a "Today" show interview Thursday that "we're in a tough cycle now and that doesn't help morale, but people are focused on what they're building."

Last month Zuckerberg gave his first interview since Facebook's shaky IPO and since that time he's been working hard to boost confidence among investors and the public.

Zuckerberg told Matt Lauer during the "Today" interview that Facebook's future is about mobile, an area it's been criticized for not capitalizing on quickly enough.

The 28-year-old executive also continued to reassure that he is the right person to lead Facebook, as some on Wall Street have questioned whether he has the ability to lead a large public company.

"I take this responsibility very seriously," he said.

Facebook Inc.'s stock gained 45 cents, or 2.1 percent, to $22.28 in premarket trading. The shares closed at $21.83 on Wednesday, off 43 percent from its $38 IPO price.

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$2.5 billion distributed to Bernard Madoff victims

Bernard Madoff, chairman of Madoff Investment Securities, returns to his Manhattan apartment after making a court appearance Wednesday, Dec. 17, 2008 in New York. (AP Photo/Jason DeCrow)

  Eyewitness NewsNEW YORK -- A court-appointed trustee in New York has mailed out $2.5 billion in checks to victims of Bernard Madoff's massive fraud.

Irving Picard announced the distribution on Thursday. He said it means that he's so far satisfied nearly half of all valid claims made by the disgraced financier's burned clients.

Picard has estimated that thousands of investors lost $17.3 billion in the decades-long fraud. He says he's recovered about $9.1 billion since he was appointed following Madoff's arrest in 2008.

Madoff pleaded guilty in 2009 to charges that he orchestrated the largest Ponzi scheme in history. He's serving a 150-year prison term.

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Fed to spend $40 billion a month on bond purchases

  MARTIN CRUTSINGERWASHINGTON -- The Federal Reserve says it will spend $40 billion a month to buy mortgage-backed securities for long as necessary to stimulate the still-weak economy and reduce high unemployment.

It also extended a plan to keep short-term interest rates at record lows through mid-2015. And it said it's ready to take other steps to boost the economy even after it strengthens.

The Fed announced the series of bold steps after its two-day policy meeting ended Thursday. Its actions pointed to how sluggish the economy remains more than three years after the Great Recession ended.

"We're not sure what the economic effects of this program will be - it should help growth and employment on the margin," Dan Greenhaus, chief global strategist at BTIG LLC, said in a research note.

Stocks rose after the announcement. The Dow Jones industrial average was up 15 points for the day just before 12:30 p.m. It surged by 105 points within minutes of the announcement, then gave up some gains to be just 35 points higher.

The dollar dropped against major currencies, and the price of gold shot up about $16 an ounce, roughly 1 percent, to $1,750.

"If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability," the Fed said in a statement released after the meeting.

The statement was approved on an 11-1 vote. The lone dissenter was Richmond Fed President Jeffrey Lacker, who worries about igniting inflation.

The bond purchases are intended to lower long-term interest rates to spur borrowing and spending. The Fed has previously bought $2 trillion in Treasury bonds and mortgage-backed securities since the 2008 financial crisis.

Skeptics caution that further bond buying might provide little benefit. Rates are already near record lows. Critics also warn that more bond purchases raise the risk of higher inflation later.

With less than eight weeks left until Election Day, the economy remains the top issue on most voters' minds. Many Republicans have been critical of the Fed's continued efforts to drive interest rates lower, saying they fear it could ignite inflation.

The Fed is under pressure to act because the U.S. economy is still growing too slowly to reduce high unemployment. The unemployment rate has topped 8 percent every month since the Great Recession officially ended more than three years ago.

In August, job growth slowed sharply. Employers added just 96,000 jobs, down from 141,000 in July and well below what is needed to bring relief to the more than 12 million who are unemployed.

The unemployment rate did fall to 8.1 percent from 8.3 percent. But that was because many Americans stopped looking for work, so they were no longer counted as unemployed.

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JP Morgan Chase loses $2 billion in 6 weeks

  DANIEL WAGNERNEW YORK -- JPMorgan Chase faced intense criticism Friday for claiming that a surprise $2 billion loss by one of its trading groups was the result of a sloppy but well-intentioned strategy to manage financial risk.

More than three years after the financial industry almost collapsed, the colossal misfire was cited as proof that big banks still do not understand the threats posed by their own speculation.

"It just shows they can't manage risk - and if JPMorgan can't, no one can," said Simon Johnson, the former chief economist for the International Monetary Fund.

JPMorgan is the largest bank in the United States and was the only major bank to remain profitable during the 2008 financial crisis. That lent credibility to its tough-talking CEO, Jamie Dimon, as he opposed stricter regulation in the aftermath.

But Dimon's contention that the $2 billion loss came from a hedging strategy that backfired, not an opportunistic bet with the bank's own money, faced doubt on Friday, if not outright ridicule.

"This is not a hedge," said Sen. Carl Levin, D-Mich., chair of a subcommittee that investigated the crisis. He said the trades were instead a "major bet" on the direction of the economy, as published reports suggested.

On Friday, Dimon told NBC News, for an interview airing Sunday on "Meet the Press," that he did not know whether JPMorgan had broken any laws or regulatory rules. He said the bank was "totally open" to regulators.

The head of the Securities and Exchange Commission, Mary Schapiro, told reporters that the agency was focused on the JPMorgan loss but declined to comment further.

JPMorgan's disclosure Thursday recharged a debate about how to ensure that banks are strong and competitive without allowing them to become so big and complex that they threaten the financial system when they falter.

The JPMorgan loss did not cause anything close to the panic that followed the September 2008 failure of the Lehman Brothers investment bank. But it shook the confidence of the financial industry.

Within minutes after trading began on Wall Street, JPMorgan stock had lost almost 10 percent, wiping out about $15 billion in market value. It closed down 9.3 percent.

Fitch Ratings downgraded the bank's credit rating by one notch, while Standard & Poor's cut its outlook JPMorgan to "negative," indicating a credit-rating downgrade could follow.

Morgan Stanley and Citigroup closed down more than 4 percent, and Goldman Sachs closed down almost 4 percent. The broader stock market was down only slightly for the day.

Dimon gave few details about the trades Thursday beyond saying they involved "synthetic credit positions," a type of the complex financial instruments known as derivatives.

Enhanced oversight of derivatives was a pillar of the 2010 financial overhaul law, known as Dodd-Frank, but the implementation has been delayed repeatedly and will not take effect until the end of this year at the earliest.

JPMorgan's trades show that the derivatives market remains too opaque for regulators to oversee effectively, said Rep. Barney Frank, D-Mass., one of the law's namesakes.

"When a supposedly responsible, well-run organization could make such an enormous mistake with derivatives, that really blows up the argument, 'Oh, leave us alone, we don't need you to regulate us,'" he said.

Criticism of the bank did not stop with its traditional chorus of detractors. It also came from Sen. Bob Corker, R-Tenn., a prominent member of the Senate Banking Committee who has received $10,000 since January 2011 from JPMorgan's political action committee, the most any candidate has received.

Corker, a leader of a failed effort last year to block a Federal Reserve rule that slashed bank profits from debit cards, called for a hearing "as expeditiously as possible" into the events surrounding JPMorgan's loss.

Tim Ryan, president of the Securities Industry and Financial Markets Association, a trade group, said it was impossible to legislate or regulate risk out of the financial system.

"My hope is that this is viewed as bona fide hedging, but it went wrong," he said in an interview. "A mistake was made. Money is going to be lost. It's not customer money. It's not government money. It's JPMorgan's money, the shareholders of JPMorgan."

No one seemed to suggest Friday that JPMorgan had broken a law. But the mistake added a wrinkle to the still-unsettled discussion about how the financial industry should be regulated in the aftermath of 2008.

"This just tells you that we are a long, long way from getting our arms around this whole 'too big to fail' issue," said Cliff Rossi, a former top risk executive for Citigroup, Countrywide and other big financial companies.

Immediately after the crisis, a time of popular outrage over bailouts and investment losses, there was broad public support for an overhaul of bank regulations.

The changes promoted by the Obama administration were in many cases similar to what the financial industry had sought before the crisis: Consolidation of regulators and oversight of the multi-trillion-dollar marketplace for derivatives.

Regulators are still drafting hundreds of rules under the 2010 law. As Wall Street has returned to record profits, and executives to million-dollar bonuses, banks have fought to soften those rules.

In particular, the industry has fought hard against a few provisions that might have prevented the problems at JPMorgan.

One is the so-called Volcker rule, which will prohibit banks from trading for their own profit. The rule is still being written, and the Federal Reserve has said it will begin enforcement in 2014.

JPMorgan said that its bets were made only to hedge against financial risk. Dimon conceded that the strategy was "egregious" and poorly monitored. But analysts, former bank executives and many lawmakers disagreed.

"This is an exact description of proprietary trading-style activity," Sen. Jeff Merkley, D-Ore., told reporters Friday. "This really is a textbook illustration of why we need a strong Volcker rule firewall."

Nancy Bush, a longtime bank analyst at NAB Research and a contributing editor at SNL Financial, said the trades probably crossed that line because they were making money for JPMorgan.

"So they made money on hedges and then they hedged some more," she said. "At some point it goes from being a hedge to being a moneymaker."

JPMorgan was seen as a savior of weaker banks during the financial crisis and the only big bank to escape relatively unscathed. His reputation enhanced, Dimon, 56, has been emboldened to challenge efforts to toughen regulation.

In an interview with the Fox Business Network earlier this year, Dimon said that Paul Volcker, the former Federal Reserve chairman for whom the rule is named "doesn't understand capital markets."

Last year, he questioned the current Fed chair, Ben Bernanke, about the rules and said they might be delaying the recovering of the financial system and the broader economy.

"Has anyone bothered to study the cumulative effect of all these things?" he asked.

Dimon, who grew up in the Queens borough of New York and was groomed by the former Citigroup chief executive Sanford Weill, has also chafed against Occupy Wall Street protesters.

"Acting like everyone who's been successful is bad and that everyone who is rich is bad - I just don't get it," he said at a conference earlier this year.

On Thursday, at about the same time he was breaking news of the $2 billion loss to Wall Street, Dimon sent an email to JPMorgan's 270,000 worldwide employees assuring them that the company was "very strong."

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AP Business Writer Marcy Gordon, AP Business Writer Pallavi Gogoi and Associated Press writer Jack Gillum contributed to this report.

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UK Olympic security costs soar over $1.6 billion

  By DANICA KIRKALONDON -- In a dramatic shift, British Olympic officials doubled the funding Monday to protect venues at the 2012 London Games, raising overall security costs to more than 1 billion pounds ($1.6 billion).

Olympics minister Hugh Robertson insisted that the London Games remained financially on track - and within contingency planning. But the new figures are certain to become a sensitive issue in Britain, as tough economic times and bleak forecasts for the future raise questions about the wisdom of hosting the Olympics.

"We're confident we can do this and remain on budget," Robertson told reporters at a news conference.

Robertson made clear that security was not a negotiable item and that the British government was obligated to make sure it took every precaution to make the July 27-Aug. 12 event safe.

The increase comes after security reviews that suggested the initial estimate of 10,000 security guards contracted for the games would not be enough. Thousands of soldiers are now part of the planning, though officials have declined to reveal the exact number.

The government said an additional 271 million pounds ($424 million) has been allocated to making venues and other sensitive sites, such as hotels, more secure. That means the total cost of securing the venues has climbed to over 553 million pounds ($862 million).

But the rise announced Monday only deals with security guards and other measures needed to protect the venues and related sites. That money is in addition to the cost of paying police and others services to provide overall security for the games. Although Britain's Home Office initially budgeted 600 million pounds ($940 million) for that, that number has been trimmed to 475 million pounds ($745 million).

Authorities say they could only come up with a figure after complex arrangements to actually stage the games were in place. Robertson said an evolving security picture also played a role, suggesting that planners could not have known about the Arab Spring, for example, when first making their plans. He insisted that the British riots last summer, however, did not play a role in the funding increase.

Margaret Gilmore, a security expert at the Royal United Services Institute, said the contingency was in place to cover security cost increases.

"Given the current security climate, it is no surprise the government has decided to use these funds after all," she said in an email. "Every possible risk to the games needs to be dealt with and it is reassuring that the money will go on further security at venues and other sensitive sites."

The biggest security worry for the Olympics is terrorism. Security has been an intricate part of the games since a terror attack at the 1972 Olympics in Munich killed 11 Israeli athletes and coaches. London has not been immune from terror attacks - four suicide bombers targeted the city's transit network in 2005, killing 52 commuters.

The British government is planning for the national terror threat to be "severe" during the Olympics, meaning an attempted attack is highly likely. About 12,000 police officers will also be on duty on the busiest days of the games.

Another increase likely to spark discussion was an additional 41 million pounds ($63.9 million) devoted to the Olympic ceremonies. Robertson defended the increase, saying that a proper spectacle was needed to make sure Britain and its tourism industry benefit. Billions of people around the globe are expected to watch the televised opening ceremonies.

"We're just never going to get another moment like this," Robertson said.

The release of the figures comes a day before government auditors unveil what is expected to be a critical report on the costs of the 2012 games. Britain's total costs for the event remains at 9.3 billion pounds ($14.5 billion).

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Capital One to buy ING Direct USA for $9 billion

  NEW YORK -- Capital One Financial says it's buying ING Direct USA in a deal valued at $9 billion.

Under the terms of the agreement, Netherlands-based ING Groep will receive $6.2 billion in cash and $2.8 billion in the form of about 56 million shares in Capital One, based on a share price of $50.07.

Capital One says the deal will make it the fifth-largest depository on the country.

ING Direct USA will hold onto the company's "orange ball" branding and use the ING Direct trademark for a transitional year.

The sale is part of ING's restructuring plan that was filed with the European Commission in 2009.

The deal will not impact ING's operations in other countries.

(Copyright ©2011 by The Associated Press. All Rights Reserved.)
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Sony to report $3.2 billion annual loss

  TOKYO -- Sony Corp. is expecting an annual loss of $3.2 billion, reversing its earlier projection of a return to profit, as the electronics giant struggles with production disruptions from Japan's tsunami and a hacker attack on its online gaming service.

The Japanese maker of PlayStation 3 video game machines and Bravia flat-panel TVs said Monday that the projection of a net loss of 260 billion yen ($3.2 billion) for the fiscal year ended March 2011 was largely due to writing off 360 billion yen ($4.4 billion) related to a tax credit booked in the fourth quarter.

Sony's official earnings report is expected Thursday. The company had earlier projected a 70 billion yen ($860 million) profit.

Like many other Japanese manufacturers, Sony has been hampered by the production disruptions set off by the March 11 earthquake and tsunami that killed more than 25,000 people, destroyed many factories and sent the nation's economic recovery into reverse.

The company kept its operating profit forecast unchanged at 200 billion yen ($2.46 billion). It expects to report sales of 7.18 trillion yen ($88.2 billion), slightly down from an earlier projection of 7.2 trillion yen ($88.5 billion).

Tokyo-based Sony also faces a new challenge to its reputation following a massive security breach affecting more than 100 million online accounts.

After temporarily closing down its online gaming services last month, Sony began restoring its PalyStation Network services in the U.S. and Europe on May 15 mainly for online gaming, chat and music streaming services.

Sony has seen plunging sales of flat-panel TVs and other gadgets, and was likely to remain in the red in its TV business for the seventh year straight.

Sony has also taken a beating in music players and other portable devices to Apple's iPod, iPhone and iPad.

The company booked a 40.8 billion yen ($439 million) loss for the fiscal year ended March 2010 after a 98.9 billion yen loss the year before- Sony's first annual red ink in 14 years.

(Copyright ©2011 by The Associated Press. All Rights Reserved.)
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