Bloomberg News

UBS, Citigroup May Be Penalized in Japan on Tibor Probe

December 12, 2011

(Updates with SESC official’s comment in fifth paragraph.)

Dec. 9 (Bloomberg) -- UBS AG and Citigroup Inc. may be penalized in Japan for attempting to influence the Tokyo interbank offered rate, the country’s securities watchdog said.

The Securities and Exchange Surveillance Commission recommended that Japan’s Financial Services Agency punish the local brokerage units of UBS and Citigroup, the watchdog said in a statement in Tokyo today. Employees of the local operations repeatedly asked bankers to change the rates they submit for setting Tibor to gain an advantage, it said.

Citigroup, the third-biggest U.S. lender by assets, is part of a global probe by regulators into whether some of the world’s largest banks manipulated the interest rates at which they borrowed from each other. In Japan, apart from the Tibor inquiry, New York-based Citigroup is facing potential penalties for compliance violations at its local banking unit.

Both Zurich-based UBS and Citigroup lacked internal controls to deal with the employees’ actions, the commission said today. It didn’t elaborate on the kinds of penalties sought.

There is no evidence that the Tibor rate was manipulated following the actions, an SESC official said at a news conference today, speaking on condition of anonymity in accordance with the organization’s policy.

Libor Probe

Citigroup’s Japanese brokerage unit, Citigroup Global Markets Japan Inc., “has started working diligently to address the issues raised,” the company said in an e-mailed statement.

Eiko Noda, a Tokyo-based spokeswoman for UBS, wasn’t immediately available to comment.

The U.S. Justice Department and the Securities & Exchange Commission may be investigating whether banks colluded to artificially reduce the London interbank offered rate, or Libor, a person with knowledge of the inquiry said in March. The probe came to light after UBS, Switzerland’s biggest bank, said it received subpoenas from U.S. and Japanese regulators.

UBS said on Oct. 25 that it has been granted conditional leniency or immunity from authorities, including the U.S. Department of Justice, that are investigating whether Yen Libor and Euroyen Tibor were manipulated. Barclays Plc has also said it’s cooperating with U.S. and British market watchdogs.

Citigroup, led by Chief Executive Officer Vikram Pandit since 2007, has been asked to make employees available to testify as witnesses before the U.K. Financial Services Authority, two other people briefed on the plans said in March. Deutsche Bank AG, Bank of America Corp. and JPMorgan Chase & Co. were also included in the request, the people said.

Tibor Rates

Tibor rates are set daily by the country’s banks through the Japanese Bankers Association, a trade group. Citigroup joined the pool of banks used to set the rates in April 2010.

Libor rates, a benchmark for more than $350 trillion of financial products worldwide, are set by the British Bankers’ Association. They are based on data from banks reflecting how much it would cost them to borrow from each other for various periods of time.

Citigroup has already attracted the attention of Japanese regulators. The FSA is preparing to penalize its Citibank Japan Ltd. unit for failing to fully explain product risk to retail customers, two people with knowledge of the situation said this month. Darren Buckley, chief executive officer of the unit, may step down as soon as this month to take responsibility for the breach, the people said on condition of anonymity.

Japan’s SESC was established in Japan in 1992 after a series of financial scandals to ensure fair transactions in securities and financial futures markets, according to its website.

--Editors: Russell Ward, Chitra Somayaji

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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