Swiss Watchdog Opens Bank Probe

We don’t generally focus in detail on topics related to price manipulation but occasionally news is released that is thought provoking regardless of an individual’s particular views on the topic. Just such news was released overnight. As a consequence of a preliminary probe that has uncovered indications of illegality, the Swiss competition regulator WEKO has announced an investigation into whether some of the big banks including Barclays, Deutsche Bank, HSBC and UBS have been conspiring to influence precious metals bid / ask spreads. 

Such manipulation would not be new with the LIBOR scandal being one example. Four large banks pleaded guilty to manipulation of FOREX rates in May and were cumulatively fined nearly $6 billion. It was only one month ago that the EU's competition regulator was reported as investigating similar behaviour with precious metals and comes after news of a US probe by the DoJ and the CFTC that we reported on earlier this year.

What’s interesting in this case is the fact that UBS has been granted conditional leniency with regards to the possible manipulation of precious metal pricing and if the LIBOR scandal is any indicator, this leniency could be a precursor to UBS releasing evidence to the investigation in an admission of guilt. Bloomberg commentary offers suggestions as to why UBS would do this, saying that “the bank may face a lower fine than the other banks and financial firms suspected in the probe or may avoid penalty altogether". ZeroHedge also hypothesises that UBS’s conditional leniency could indicate that “the regulators have definitive proof it is involved, and gave it the option to turn in evidence or face even more massive financial penalties.”

In terms of consequences, we have seen similar revelations in the past such as LIBOR, FX and the tax evasion issue result in fines. Although Bloomberg has suggested that UBS may be able to escape penalty entirely in the event of criminal findings, other suggestions lay at the opposite end of the spectrum. In the case of UBS, one of the conditions for such an agreeable LIBOR outcome was that the bank “commit no United States crime whatsoever” for a fixed period that was then extended subsequent to the deal. If this condition turns out to have been violated, the consequences could be more impactful than the simple issuance of fines, with ZeroHedge commentary overnight suggesting that “the bank could well lose its license to operate in NYC”.

Now regardless of individual views on the validity or possibility of such manipulation, it is interesting to ponder the potential impact that the outcome of this investigation could have on the pricing of precious metals and how the current supply and demand equation may change.