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UBS and Libor: The 'Epic' Saga Continues; NYSE Announces Merger

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Holiday Notice: The Morning Scan will publish next on Thursday, Jan. 3, 2013. Happy holidays from all of us at American Banker.

Receiving Wide Coverage ...

The UBS-Libor Saga Continues: "Epic," that's the word regulators (and, subsequently news outlets) are attaching to UBS' involvement in the London interbank offered rate-rigging scandal as more details emerge about what led to its recent $1.5 billion settlement with authorities and the arrest of two former traders Tom Hayes and Roger Darin. (Yesterday's Scan did mention arrests were forthcoming.) Sordid details pointing to the scope of UBS' offenses are too numerous to reprint here (hence, the word epic) but do include the revelation that a junior employee was once told "a main consideration for rates submissions was the needs of [Hayes] and his fellow yen swaps traders" (via Dealbook) and there's also the now seemingly obligatory embarrassing internal email (via the Journal) in which a broker writes "hopefully the sheep will just copy," UBS' submission of artificially high rates.

The news round-ups also indicate UBS' rate-rigging woes may not have all played out yet. The FT reports Hong Kong is now "probing possible misconduct" by the bank regarding China's HIBOR. Meanwhile, the Washington Post devotes an article to allegations that the Libor scandal may have cost mortgage giants Fannie Mae and Freddie Mac up to $3 billion. (The article is based on an "internal government memo" written by the inspector general for the Federal Housing Finance Agency that the Journal also appears to have gotten a look at.) Per the Post: "The manipulation likely caused Fannie and Freddie to lose billions of dollars on their holdings of more than $1 trillion in interest-rate swaps, floating-rate bonds, mortgage-backed securities and other assets linked to Libor from September 2008 to 2010." And a lawsuit (or two) may be forthcoming as the inspector general also recommended the FHFA consider suing banks involved in the rate-rigging scheme. FHFA lawsuits, however, are not the only thing financial institutions currently being probed over Libor should be worried about since, per the FT, UBS' record fine and the charges against Hayes and Darin "underscore what may lie ahead for dozens of other banks, brokers and traders."

NYSE Merger: The New York Stock Exchange has agreed to a deal that will see it merge with IntercontinentalExchange, Dealbook is reporting this morning. Under the terms of the deal, NYSE Euronet will sell itself to "the upstart competitor" for $33.12 a share in cash and stock or a total of around $8.2 billion. According to the FT, which was reporting on earlier rumors of the deal being in the works, the move "would push Atlanta-based ICE, best known as an energy trader, into trading listed interest rate derivatives — a market which exchanges hope to exploit when an overhaul of the derivatives market comes into force in the U.S. next year."

Wall Street Journal

Blackrock and Federated Investors "might bolt the door" to shield their money market funds from the cash expected to flood out of U.S. banks once the unlimited Federal Deposit Insurance Corp. guarantee on no-interest bank accounts ends on Dec. 31. These firms are worried the influx "will depress record low yields, hurting investors and making it costlier for managers to operate."

Financial Times

Lloyds and Bank of Scotland will suspend sales of packaged bank accounts next year in an effort to avoid winding up at the center of "another consumer mis-selling scandal."

U.K. Prime Minister David Cameron doesn't want to break up the country's biggest banks, and, instead, prefers "to go no further than the ringfencing model" proposed by the Vickers commission.

New York Times

Now that AIG is off the books, the Treasury Department is moving to sell its stake in General Motors over the next fifteen months, but this exit "would produce a loss of more than $12 billion for taxpayers."

Meanwhile, Ally Financial has repaid the last of its debt "borrowed in response to the financial crisis under a Federal Deposit Insurance Corporation program."

Municipalities will fight a federal plan to tax municipal bond interest since it is likely to make it more expensive to finance construction projects.

Washington Post

Is there a housing recovery underway? Wall Street apparently seems to think so as Standard & Poor's "overall index for the homebuilding industry is up 59.4% this year."

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(Image: Bloomberg News)

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