UBS Is Described as Near Deal on Rate Rigging

UBS, the Swiss banking giant, is close to reaching settlements with American and British authorities over the manipulation of interest rates, the latest case in a multiyear investigation that has rattled the financial industry and spurred a public outcry for broad reform.

UBS is expected to pay more than $450 million to settle claims that some employees reported false rates to increase the bank's profit, according to officials briefed on the matter who spoke on the condition of anonymity because the talks were private.

If the bank agrees to the deals with various authorities, the collective penalties would yield the largest total fines to date related to the rate-rigging inquiry and would increase the likelihood that other financial institutions would face stiff penalties. Authorities dealt their first blow in the rate-rigging case in June when the British bank Barclays agreed to a $450 million settlement.

A spokeswoman for UBS declined to comment. The ag encies leading the UBS investigation, the Commodity Futures Trading Commission, the Justice Department and Britain's Financial Services Authority, also declined to comment.

The UBS case will provide a window into systemic problems in the rate-setting process, which affects how consumers and companies borrow money around the world. After reviewing thousands of internal bank e-mails and interviewing dozens of employees, the authorities have uncovered patterns of abuse at the major banks that help set benchmark interest rates.

The sprawling investigation is focused on benchmarks like the London interbank offered rate, or Libor. The rate, a measure of how much banks charge each other for loans, is used to determine the costs of trillions of dollars of mortgages, credit card charges and student loans.

The authorities claim that UBS traders colluded with rival banks to influence rates in an effort to bolster their profits, according to officials briefed on the ma tter. Some traders at UBS were suspended this year over the matter.

Given the scope of the case, the UBS settlement is expected to heighten calls for a reform of the Libor system. Lawmakers are pushing to change the way banks report rates, providing more transparency to consumers, companies and investors that rely on the benchmark.

The reform movement gained momentum after global authorities secured the settlement with Barclays. Regulators had accused Barclays of reporting false rates, a scandal that prompted the resignation of the chief executive and other top officials at the bank.

Global authorities are now moving forward with civil and criminal cases, setting up the potential for major fines and regulatory sanctions. Some banks are in advanced settlement talks, including UBS and the Royal Bank of Scotland. The Royal Bank said it expected to disclose penalties before the firm's next earnings release in February. Deutsche Bank said last month that it had set aside money to cover potential fines, although it was too early to predict the size.

American authorities are hoping to complete a deal with UBS by the middle of the month, according to officials briefed on the matter. The officials noted that the discussions could spill into next year. The talks could also break down, in which case the authorities would file a lawsuit against the bank.

It is unclear whether global authorities will act in tandem on the UBS case. The bank and the regulators would prefer to strike a deal together, but the agencies are proceeding at different speeds.

Investigators say the broader Libor case could go on for years.

Canadian, Swiss and Asian authorities as well as the Justice Department, the Commodity Futures Trading Commission and Britain's Financial Services Authority are investigating the actions of more than a dozen banks. Along with UBS, the futures commission is focused on potential wrongdoing at two American bank s, Citigroup and JPMorgan Chase, the officials said. HSBC is also under scrutiny.

In addition to the regulatory cases, the Justice Department has identified potential criminal wrongdoing by traders at Barclays and other banks. The banks also face private lawsuits from large investors like local governments, which claim to have suffered losses as a result of interest rate manipulation. The New York attorney general has subpoenaed 16 banks over their role in the scandal, an action that could foreshadow civil lawsuits. Analysts predict the financial industry could face penalties of up to $20 billion.

“The evidence that comes out of any future settlement is likely to be enormously helpful for our claims,” said David E. Kovel, a partner at the law firm Kirby McInerney who is representing clients in a potential class-action suit related to Libor.

For UBS, the Libor case comes at a difficult time.

It has faced a series of legal problems since the financi al crisis. In 2009, the bank agreed to pay $780 million to settle accusations by American authorities that it helped wealthy clients avoid taxes.

In 2011, it announced a $2.3 billion loss prompted by a rogue trader, Kweku M. Adoboli, who received a seven-year jail sentence for fraud last month. The firm agreed to pay a $47.5 million penalty to the British authorities in connection with the trading loss.

In the Libor case, UBS has been eager to cooperate. It has already reached a conditional immunity deal with the antitrust arm of the Justice Department, which could protect the bank from criminal prosecution under certain conditions. It is also cooperating with Canadian antitrust authorities by handing over e-mails and other documents implicating other banks.

But it did acknowledge publicly that such deals would not shield the bank from potential penalties from other regulators. The Justice Department's criminal unit, for instance, could still take action ag ainst the bank.

UBS disclosed last year that it was the subject of investigations related to Libor, saying it had received subpoenas from American and Japanese authorities. Swiss and British regulators have joined the UBS investigation, which involves a number of currencies in the Libor system.

The timing of the Libor cases against UBS depends in large part on cooperation among regulators.

The Financial Services Authority in Britain has worked closely with its American counterparts. In total, the British regulator has about 160 people working on its various cases against banks, which are at different stages of development.

As the top watchdog of London's financial services industry, the British regulator has positioned itself as a conduit for document requests from international regulators regarding Libor, which is set daily by banks in London. The agency also organizes interviews for its American counterparts with London-based bankers involved in the inquiries, according to an official with direct knowledge of the matter.

British regulators had been ready to move against UBS a month after officials announced a settlement with Barclays, the person added. The settlement has been delayed, however, as global authorities have tried to pursue a joint agreement with the bank.

“We've been going at the pace of the slowest regulator,” the official said.

Morgan Stanley Trader Faces Inquiry on Possible Manipulation

On paper, Glenn Hadden seemed to be the ideal person to run a large bond trading operation at Morgan Stanley when he was hired in early 2011. Mr. Hadden, a former Goldman partner, was one of the most profitable bond traders on Wall Street.

But there was more to his story than just stellar financial results. He had left his previous employer, Goldman Sachs, after questions about his trading activity. And now, Mr. Hadden is under investigation over his trading in Treasury futures while at Goldman, according to a regulatory filing.

Specifically, regulators at the CME Group, which runs commodity and futures exchanges, are investigating whether Mr. Hadden's purchases or sales of Treasury futures late in the trading day manipulated closing prices in the market and, in turn, made other of his trades more profitable, according to people briefed on the matter who were not authorized to speak publicly.

Mr. Hadden, who is now the head of the global interest rates de sk at Morgan Stanley, has been given formal notice by the CME that an inquiry is under way, meaning that it is at an advanced stage.

Through a Morgan Stanley spokesman, Mr. Hadden, 42, declined to comment. Goldman Sachs also declined to comment, and Morgan Stanley would say only that Mr. Hadden continues to work at the firm as head of global rates.

Mr. Hadden is one of the highest paid professionals at Morgan Stanley and has been known throughout his career for aggressive and profitable risk taking. It is unusual for someone of Mr. Hadden's stature to be the target of a civil complaint like this, and if he is found to have violated exchange rules, he could, in the extreme, face millions in fines and be barred from trading on the CME Group.

While Morgan Stanley and Goldman Sachs learned about the investigation only in recent months, both firms were aware of another controversy involving Mr. Hadden that took place not long after the CME trading now under scrutiny.

After receiving complaints involving Mr. Hadden from the Federal Reserve Bank of New York, Goldman Sachs took the extraordinary step of putting him on paid leave in 2009, according to several people briefed on the matter.

Goldman is one of 21 firms designated to trade United States government securities with the New York Fed. Traders at the Fed, according to people briefed on the matter, suspected that Goldman was trying to improperly profit from one of the federal government's bond-buying programs, which are aimed at stimulating economic growth. A spokesman for the New York Fed declined to comment.

While neither Goldman nor Mr. Hadden was accused by regulators of wrongdoing in that case, Mr. Hadden's leave from Goldman dragged on for months, in part because senior managers were divided on whether he should return to work, and whether he should have managerial responsibilities if he did return, according to people involve d in the discussions.

In November 2010, Goldman told its employees that Mr. Hadden was leaving the firm. Morgan Stanley snapped him up soon afterward. Several senior executives there were aware of the New York Fed's complaints when Mr. Hadden was hired, but they were satisfied that he had not done anything wrong, according to people involved in the decision to hire him.

“Wall Street is always looking for a proven moneymaker and has been known to look the other way on things in pursuit of that,” said Michael Driscoll, a former senior trader at the Wall Street firm Bear Stearns who now teaches at Adelphi University.

Mr. Hadden joined Goldman in 1999, just months before the firm went public, and rose to become one of the bank's top traders. In 2008 he was made a partner, a title typically reserved for executives known inside Goldman as “commercial killers” - people who make an outsize financial contribution to the firm. Current and former colleagues sa id Mr. Hadden, who has been known to drink copious amounts of Gatorade at work, was almost “machinelike” when he traded. “He gets this look in his eye,” one former colleague said. “It is scary.”

His trading made him very wealthy. His exact compensation is not known but rival rates traders and head hunters estimate that in his best years he made more than $10 million.

Mr. Hadden was just the sort of swing-for-the-fences trader Morgan Stanley needed in late 2010, when it was working to rehabilitate its fixed income, or bond, department. That unit, where Mr. Hadden now works, was badly bruised during the financial crisis. Since then, its efforts to rebuild have been slowed by ratings cuts and new regulations that require it and its rivals to hold more capital against riskier operations. These rules are forcing Morgan to either scale back or get out of certain business lines altogether.

Trading interest rates, which fall under the bond department, h owever, is less capital intensive, so in recent years, Morgan Stanley has made a big push into this corner of Wall Street. Enter Mr. Hadden.

He has continued to deliver profits to Morgan Stanley, but his time there has not been without incident. In 2011, Mr. Hadden's division was burned by a bad wager on United States inflation expectations, resulting in a loss of tens of millions of dollars, according to people briefed on the trade. Since then, Morgan executives have increased their supervision of Mr. Hadden's activities, according to several people briefed on the matter.

A lot is riding on Mr. Hadden at Morgan, however. Not only does he run the firm's powerful rates desk, but many of his bosses - including Colm Kelleher, co-president of institutional securities, and Kenneth M. deRegt, global head of fixed income sales and trading - had a role in hiring him.

Morgan Stanley reported the investigation to the Financial Industry Regulatory Authority, Wall Stre et's self-regulator, on Nov. 19, according to a person briefed on the matter.

Mr. Hadden got his start in finance in Canada. He was raised in Ontario and attended the University of Western Ontario, where he played football. He worked on Bay Street, which is Toronto's financial district, and eventually landed a job there with Goldman. He also worked for Goldman in London and New York.

He has not forgotten his Canadian roots. He is a big supporter of the Toronto Argonauts football team, and he held a charity-driven party in Toronto connected to the recent centennial Grey Cup.

Delta, Seeking London Access, Ponders a Stake in Virgin

Delta Air Lines is in talks to buy Singapore Airlines' 49 percent stake in Virgin Atlantic Airways, in an effort to bolster its international operations, particularly flights between New York and London, a person briefed on the matter said on Sunday.

Talks are continuing but a deal will not be announced soon, this person said. Singapore Airlines confirmed that it was in discussions about a potential sale of its Virgin stake, but provided no further details.

A transaction would be the latest in a round of mergers that has reshaped the airline industry, as companies in the United States and Europe have looked to consolidation to restore profitability.

With oil prices remaining stubbornly high and the economic outlook uncertain, many airlines have continued to struggle. That may precipitate even more takeovers, analysts say.

A deal would also be Delta's most significant strategic move since its 2010 merger with Northwest Airlines, which made it the big gest American carrier until the union of United Airlines and Continental Airlines last year.

It would provide more access to London's Heathrow Airport, one of the world's busiest, and expand Delta's North Atlantic business.

It would also bolster its partnership with Air France KLM, Europe's biggest airline. Both companies are part of the Sky Team global alliance, and also run a joint business in the North Atlantic market, sharing flights, revenues and costs.

“Delta has shown time and time again that it is extremely opportunistic,” said Brett Snyder, an airline expert. “If it sees a good opportunity, nothing is off the table.”

If it proceeded, a transaction would directly challenge the Oneworld global alliance, whose biggest members are American Airlines and British Airways. The two airlines have an international joint venture. Virgin does not belong to any of the three major airline alliances - Star, Oneworld and Sky Team - depriving it of the ability to coordinate flights and cut costs, which has helped many of its competitors. Star's major carriers are United, USAir and Lufthansa. The deal would also give Virgin a strong partner as it struggles to compete against rivals with deeper pockets. Founded by Richard Branson in 1984, the company has long embraced an image of fun travel and cheaper fares.

But that has not helped the airline's financial condition of late. Virgin lost £80 million, or $128 million, in the year that ended in February, compared with a profit of £18.5 million in the previous year.

The company has been under pressure from the likes of British Airways, whose corporate parent, IAG, bought BMI British Midlands earlier this year. Virgin fought against that deal, arguing that it would give British Airways too much of a presence at Heathrow. But the takeover was completed, after IAG complied with a European Commission order to give back 14 slots at the airport.

The deal may also pave the way for an eventual change of control of Virgin. The company's chief executive, Steve Ridgway, told The Financial Times in an interview in January that Mr. Branson was prepared to sell some of his 51 percent controlling stake in the airline.

“For Virgin, it's an exit strategy in an environment where they are being marginalized by alliances on the Atlantic,” said Robert W. Mann, an airline analyst based in Port Washington, N.Y.

A Delta spokeswoman declined to comment. A representative for Virgin was not immediately available for comment.