The U.S. Justice Department is set to rip up its agreement not to prosecute UBS Group AG for rigging benchmark interest rates, according to a person familiar with the matter, taking a new step to hold banks accountable for repeat offenses.
The move by the U.S. would be a first for the industry, making good on a March threat by a senior Justice Department official to revoke such agreements and putting banks on notice that these accords can be unwound if misconduct continues.
UBS is among the five banks that are poised to reach settlements with U.S. regulators over allegations that they manipulated currency markets, people familiar with the situation have said. Four of them Citigroup Inc., JPMorgan Chase, Barclays and Royal Bank of Scotland Group will likely enter pleas related to antitrust violations, people familiar with the talks have said.
"This is basically a trade off," said Andreas Venditti, an analyst at Vontobel Holding AG in Zurich. "They get leniency on foreign exchange and a lower fine and instead the Justice Department comes back with Libor."
UBS's cooperation in the currency probe may help shield it from antitrust charges in that matter. However, the bank is still exposed to fraud charges in that case, and any admission of wrongdoing could also put it in violation of an earlier deal the Zurich-based bank struck with the Justice Department
UBS shares fell as much as 2.1% and were 0.9% lower as of 11:13 a.m. in Zurich trading, paring gains this year to 14%.
In a December 2012 nonprosecution agreement with the U.S. to resolve a worldwide investigation into the manipulation of the London interbank offered rate, or Libor, UBS promised not to commit crimes for two years.
That agreement, which was set to expire last year, was extended through December as the Justice Department investigated currency rigging.
As part of the currency settlements, which are set to be announced in coming days, UBS is expected to plead guilty to a charge stemming from the Libor agreement, said the person, who asked not to be named because the settlement has not been announced.
Peter Carr, a Justice Department spokesman, and Karina Byrne, a UBS spokeswoman, declined to comment.
Leslie Caldwell, the head of the Justice Department's criminal division, said in March she wouldn't hesitate to tear up non- or deferred-prosecution agreements in exchange for banks' cooperation in other probes.
The Justice Department has relied on these deals to resolve investigations into wrongdoing in the financial industry including money laundering and interest-rate rigging.