Independents Characterize UBS Libor Probe As Yet Another Black Eye For The Wirehouses

Wednesday, March 16, 2011 23:13
Independents Characterize UBS Libor Probe As Yet Another Black Eye For The Wirehouses

Tags: U.S. economy

News that UBS is in trouble again -- this time for allegedly manipulating interest rates -- was all the rage among independent-minded advisors yesterday and will undoubtedly raise new questions about the big banks' ethics.

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Several RIAs who take their fiduciary conflict-free status seriously alerted me to the story of how UBS is now under investigation over whether it tried to manipulate the key LIBOR interest rate -- and if so, whether it colluded with any or all of the other global money center banks that set the rate in the process.


This is an immensely serious charge for the simple reason that as a benchmark lending rate, LIBOR was an obscure but crucial factor in the adjustable-rate mortgage boom and subsequent housing collapse.


While there are as yet no details on how exactly UBS is supposed to have manipulated the rate, an artificially high LIBOR could have boosted ARM payments beyond their proper level and thus inflated the amount of interest struggling homeowners had to pay.


Bank of America, Citi, and Barclays have also reportedly received subpoenas from a staggering list of regulators, including U.S., British, and Japanese agencies.


This may simply be a case of independents hoping to make hay of another scandal in the bulge bracket, but if anything comes of it, it could be a truly epochal development.


LIBOR seemed to have decoupled from underlying interest rates at various points leading up to the credit crash. If the irregularities were deliberate, this could be a very ugly story indeed.



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