Deutsche Bank hid 12 billion in losses to avoid being bailed out.... but the real dirt is how dirty the hands of the SEC's Chief of Enforcement's hands are - by the way , the chap was also DB's General Counsel and in charge of legal compliance when the dirty deeds were done ! ! UBS and HSBC nearing settlements for past dirty deeds...

http://www.nakedcapitalism.com/2012/12/khuzami-deathwatch-sec-ignores-tips-about-12-billion-of-hidden-losses-at-deutsche-bank.html

THURSDAY, DECEMBER 6, 2012

Khuzami Deathwatch: SEC Ignores Tips About $12 Billion of Hidden Losses at Deutsche Bank

Two days ago, we said it was time to fire the SEC’s chief of enforcement Robert Khuzami, who has not provided the tough policing warranted by the biggest financial crisis in the agency’s history. Our call was based on compelling evidence of failure. Specifically, a year and a half after Dodd Frank created a $450 million whistleblower fund, which Khuzami confirmed had produced hundreds of high quality leads, the agency had taken only one referral far enough to merit a payout, that of a measley $50,000. We stressed that this was an astonishing lapse:

… whistleblowers are insiders and therefore should in many cases have access to the sort of internal documents that would serve to substantiate conduct and save the SEC a ton of time. In other words, this should be a prime, potentially its best, source of leads, since the SEC would be further along in case development if any of these tips had meat (ie, both damning info and on target with a clear violation).

We didn’t anticipate that the story of Khuzami’s negligence would blow so big so quickly. Today, the Financial Times reported that three separate whistleblowers charged that Deutsche Bank had mismarked up to $12 billion in exposures to make it look healthier in 2008 and 2009 than it was, yet the agency had not acted on these allegations. And this level of window dressing most assuredly would make a difference. From the Financial Times article that discusses the charges in detail:

When Deutsche reported earnings at the start of 2009, its tier one capital ratio – the gauge of banks’ ability to absorb losses – was about 10 per cent, with €32.3bn of tier one capital against €316bn of risk-weighted assets. If the tier one capital had fallen by €8bn, below the upper end of the former employees’ estimates, its ratio would have fallen below the 8 per cent that German regulators were demanding at the time.

It is important to recognize that even now, Deutsche is thinly capitalized. Bank analyst Chris Whalen wrote in 2011:

Even Deutsche Bank, arguably the most important bank in Western Europe, has just €50 billion in capital supporting €1.7 trillion in total assets. Only by ignoring the sovereign and off-balance sheet footings of Deutsche and other major EU banks can anyone even for a moment pretend that these banks are solvent.

The bank’s year end 2011 balance sheet shows even higher leverage: equity of €55 billion versus €2.2 trillion in assets.

Although 2009 appears to be when the mismarking reached its peak, there was evidence of monkey business before that. The FT’s Lex column points out that the German bank miraculously managed to report profits in the third quarter of 2008, which closed right after the Lehman/AIG implosions. That miracle was achieved by reclassifying €25bn of trading assets, which skeptical investors were told was permissible thanks to changes in accounting rules.
The line taken to minimize the significance of these charges is the trades were eventually unwound without impairing the bank. Yes, in no small measure because the financial system is still on life support, with central banks engaging in ZIRP to goose asset prices and flatter bank balance sheets (and that’s before we get to the ongoing high wire act in Europe to contend with French and German bank exposure to periphery country debt). So the idea that this all worked out well is a convenient fiction. It all worked out well for bankers, at considerable cost to ordinary citizens in their economies. If Deutsche had gotten a formal bailout, the odds are decent that changes in management and operations would have been forced on the bank (remember, Germany is more oriented towards industrial capital than financial capital, so the odds of a big bank welfare queen getting to carry on as before are less likely than the example of Citigroup would suggest). Again from the FT:

“If Lehman Brothers didn’t have to mark its books for six months it might still be in business,” says one of the men. “And if Deutsche had marked its books it might have been in the same position as Lehman.”

Of the three whistleblowers’ allegations, the one presented in the most detail is from a Deutsche Bank risk manager, Eric Ben-Artzi, who was fired three days after making his whistleblower submission a year ago and is suing for retaliation. Ben-Artzi is ex Goldman and upon joining the German bank in 2010, noticed serious irregularities in how Deutsche valued certain risks, particularly related to leveraged super senior trades, and sought to work back to how big the exposures were at their most extreme point. Leveraged super senior was a levered way to mimic the performance of a super senior CDOs and CLOs (collateralized loan obligations). As we now know, virtually all AAA CDO tranches went to zero, so this was a levered way to lose money. CLOs, by contrast, traded down during the crisis but for the most part recovered. They were extremely illiquid and were mainly funded short term, via asset backed commercial paper. Deutshe was 65% of that market, and the notional value of its book was $130 billion. This appears to be a classic example of looting. Traders booked $270 million of profits up front (as we discussed in ECONNED, was permitted under Basel II rules if you took an AAA exposure and hedged it with a highly-rated counterparty), which also boosted the bonuses of everyone up the line.
Ben-Artzi focused on the “gap option,” which was the risk that counterparties would default on the hedges that Deutsche had put on the trade. He determined the exposure was was as high as $10.4 billion during the crisis. The FT gives an admirable account of all the various ways Deutsche tried to fudge both the modeling of the risk and the hedging of the position, including simply ignoring it:

Then, in October 2008, Deutsche chose another path. A person familiar with the situation acknowledges that from this point until the end of 2009, Deutsche stopped any attempt to model, haircut or reserve for the gap option but says that the company took that action because of market disruption during the financial crisis. This was signed off by KPMG, the external auditor, the person said.

It gets even better. They pretended they had dealt with the problem by buying S&P puts. As reader MBS Guy wrote: “This is basically total bullshit, but was blessed by senior management and, presumably, accountants and regulators.”
For the LSS based on CLOs (which were structured bonds based on portfolios of levered loans), Deutsche had another risk management festering wound:

Some banks did share one problem, though: there was a mismatch in the initial trade and the offsetting trade. Deutsche was buying protection on a customised range of companies, which included diverse names from around the world. It was then selling protection on a range of companies in the CDX index of US-only companies. This was the same series of indices that JPMorgan Chase used in its infamous “London Whale” trades, which this year racked up more than $6bn in losses. It was an imperfect hedge. Credit spreads in one portfolio could deteriorate while the other portfolio could improve.

And get a more specific allegation of a deliberate misvaluation involving none other than Warren Buffett:

Adding to the risk, many of the counterparties were Canadian – meaning the protection Deutsche bought was priced in Canadian dollars. But the protection it sold to offset the trades was priced in US dollars. If the currencies moved apart, losses could be accentuated.
At first Deutsche priced this risk of currency movements intertwined with credit risk – known as “quanto risk” – at zero, two of the former employees alleged. They allege that this alone should have added hundreds of millions of dollars to Deutsche’s mark-to-market losses.
A person familiar with the matter denies this, and says that the bank set up a reserve to deal with the quanto risk. But with market volatility during the crisis, the bank realised it had to do more. Eventually, Deutsche reached for a saviour that had helped many institutions during the financial crisis: Mr Buffett…
Berkshire wrote insurance on the quanto risk for Deutsche at a cost of $75m in 2009. Deutsche then accounted for this as full protection on the risk. But the contract agreeing the trade, reviewed by the FT, caps the payout in the event of losses at $3bn, while Deutsche was claiming protection on tens of billions of dollars. Once again, the former employees allege, the bank was accounting as if it had fully insured itself against loss while in reality insuring itself against only a small portion.

Mind you, this is only a summary of only some of the major risk management twists, turns, and omissions. The FT account points out that the allegations of another whistleblower, former derivatives trader Matthew Simpson, who filed his complaint prior to Ben-Artzi, includes not only the gap option hedge failures and misreporting, but also the active mismarking of positions. And an even earlier whistleblower, mentioned only in passing by the FT, also told the SEC about gap option misreporting and widespread position fudging.
It’s hard to ignore these allegations, particularly since Deutsche fired both Ben-Artzi and Simpson, who settled his anti-retaliation suit for $900,000. And it wasn’t as if the SEC somehow hadn’t gotten around to these charges among the hundreds of complaints in its whistleblower queue. From the FT’s overview article:

All of the men spent hours with SEC enforcement attorneys and provided internal bank documents during multiple meetings, people familiar with the matter say.

Khuzami’s position is hopelessly conflicted. He was general counsel for the Americas for Deutsche from 2004 to 2009, so this behavior took place on his watch. Although he has recused himself from this probe, that’s inadequate. Recusal does not work when the people working on the matter in the end have the party with the conflict as their boss. They can’t pursue any real dirt that could implicate him without hurting themselves. If it came to naught, they’d still fear the risk of reprisal if he survived. And if he were forced to leave, they’d be faced with a new boss who might not be at all to their liking.
The only way to have an effective investigation is either to have Khuzami resign or to have the matter handed off to a completely independent firm (and even that’s a stretch, both from the agency side, and from the dearth of firms with decent securities law expertise that would be willing to face off against a major bank. Just as with the bankruptcy bar, you either work for the banks [the creditors] or against them [for the debtors]). It’s also a wee bit too cozy that Deutsche’s current general counsel is also a former SEC head of enforcement. And KPMG, the accountant that blessed all this highly dubious financial footwork, and Fried Frank, which led an investigation initiated by Deutsche and apparently found nothing much wrong, also don’t come out looking very good.
MBS Guy offers a line of speculation:

Ultimately, this is the type of issue that explains why banks abandoned Obama and lobbied and campaigned so hard for Romney. They were trying to buy having this type of issue being swept under the carpet. The accommodation they had gotten from the Administration was huge, but it wasn’t enough – they knew they had bigger issues lurking in the background and wanted insurance that the issues would get buried. I think it was a pretty stupid use of money by the banks, considering how pro-bank Obama and Geithner are.

While that may sound plausible, senior bankers carry on as if they have done absolutely nothing wrong and deserve to continue to be Masters of the Universe, despite nearly blowing it up. So I suspect they are too deeply convinced of their own innocence, despite the considerable evidence to the contrary, to support Romney as a way of protecting themselves against crisis-related bad behavior coming to the surface. Obama, Geithner, Eric Holder, and Khuzami have been their best friends: they rough the banks up just an itty bit to appease the masses and give Team Dem a few soundbites around election time. If Congress takes interest in this case and starts digging, the banks might come to recognize how much air cover the Administration has actually been giving them.

http://www.zerohedge.com/news/2012-12-05/bombshell-deutsche-bank-hid-12-billion-losses-avoid-government-bail-out

Bombshell: Deutsche Bank Hid $12 Billion In Losses To Avoid A Government Bail-Out

Submitted by Tyler Durden on 12/05/2012 16:58 -0500

• Bank of America
 
• Bank of America
 
• Berkshire Hathaway
 
• CDO
 
• Collateralized Debt Obligations
• default
 
• Deutsche Bank
 
• European Central Bank
• fixed
 
• keynesianism
 
• None
 
• Real estate
 
• Reuters
• Risk Management
 
• Robert Khuzami
 
• Securities and Exchange Commission

Forget the perfectly anticipated Greek (selective) default. This is the real deal.The FT just released a blockbuster that Europe's most important and significant bank, Deutsche Bank, hid $12 billion in losses during the financial crisis, helping the bank avoid a government bail-out, according to three former bank employees who filed complaints to US regulators. US regulators, whose chief of enforcement currently was none other than the General Counsel of Deutsche Bank at the time!

From the FT:

The three complaints, made to regulators including the US Securities and Exchange Commission, claim that Deutsche misvalued a giant position in derivatives structures known as leveraged super senior trades, according to people familiar with the complaints.

All three allege that if Deutsche had accounted properly for its positions – worth $130bn on a notional level – its capital would have fallen to dangerous levels during the financial crisis and it might have required a government bail-out to survive.

Instead, they allege, the bank’s traders – with the knowledge of senior executives – avoided recording “mark-to-market”, or paper, losses during the unprecedented turmoil in credit markets in 2007-2009.

Two of the former employees allege that Deutsche mismarked the value of insurance provided in 2009 by Warren Buffett’s Berkshire Hathaway on some of the positions. The existence of these arrangements has not been previously disclosed.

Naturally, DB is defending itself in the only way it knows: "this is complicated stuff, and we know better than those guys." In other words, this is just a "tempest in a teapot." Where have we heard that before...

The bank said the investigation revealed that the allegations “stem from people without personal knowledge of, or responsibility for, key facts and information”. Deutsche promised “to continue to co-operate fully with the SEC’s investigation of this matter”.

The complaints were made at different times in 2010 and 2011 independently of each other. All of the men spent hours with SEC enforcementattorneys and provided internal bank documents during multiple meetings, people familiar with the matter say.

SEC enforcement attorneys eh? Because this is where it gets really fun: the person who was in charge of DB's legal compliance at the time was none other than Robert Khuzami. The same Robert Khuzami who just happens to be the chief of enforcement at the SEC!

Robert Khuzami, head of enforcement at the SEC, has recused himself from all Deutsche Bank investigations because he was Deutsche’s general counsel for the Americas from 2004 to 2009. Dick Walker, Deutsche’s general counsel, is a former head of enforcement at the SEC. The SEC declined to comment on the investigation.

Sadly, the "we are too sophisicated" defense may not be very effective this time.

Two of the former Deutsche employees have alleged they were pushed out of the bank as a result of reporting their concerns internally.
One of them, Eric Ben-Artzi, a risk manager at Deutsche, was fired three days after submitting a complaint to the SEC. In a separate complaint to the Department of Labor, he claims his dismissal was retaliation for his allegations.

Matthew Simpson, a senior trader at Deutsche, also left the company after submitting his own complaint to the SEC. Mr Simpson declined to comment. Deutsche Bank paid Mr Simpson $900,000 to settle his anti-retaliation lawsuit. Reuters reported in June 2011 that Mr Simpson had raised concerns about improper valuation of the derivatives portfolio.

The third complainant, who worked in risk management and has requested anonymity, raised his concerns to the SEC and voluntarily left the bank.

Or actually, since every bank in the world is forced to lie, cheat and mismark its own balance sheets every single day, not least of all the European Central Bank which as of moments ago has to accepted defaulted Greek bonds as collateral, this may just be completely ignored.

After all opening this particular Pandora's Box may well reveal that not only DB but the world's entire financial system is completely and totally insolvent.

* * *

And for those curious why the SEC's chief enforcer will never lift a finger against his own bank, all other considerations and recusals aside, here is what we wrote back in May 2010

Robert Khuzami Stands To Lose Up To $250,000 If He Pursues Action Against Deutsche Bank

When the SEC'a Robert Khuzami recently recused himself of pursuing an investigation against Deutsche Bank in regard to potential CDO malfeasance, a bank where it is common knowledge the CDOs flowed (and were shorted "where appropriate" by Mr. Lippmann and his henchmen) like manna from heaven, we were curious just how large the conflict of interest must be for him to not pursue his official duty. Luckily, we were able to answer this question when we recently encountered Mr. Khuzami's Public Financial Disclosure Report for Executive Branch Personnel. It appears that Mr. Khuzami,who from 2002 to 2009 worked at DB, most recently as General Counsel, might have directly profited quite handsomely from the very activity he is now prosecuting Goldman, and other banks very likely soon, for engaging in. How handsomely? His 2007 bonus, 2008 salary and bonus, and 2009 salary added up to $3,804,537. This works out to about $1.9 million in comp per year. And let's not forget that 2006/2007 was the peak years for DB's CDO issuance. It sure seems Mr. Khuzami benefited nicely as a participant in precisely the kind of CDO gimmickry that he is currently all over Goldman for. Yet most ironic, is that Robert is expecting to receive between $100,001 and $250,000 in vested deferred stock comp from Deutsche Bank in August 2010. Should he, or someone else at the SEC, commence an investigation into Khuzami's former employer, the SEC's Director of Enforcement is sure to lose a substantial amount of money tied into the absolute value of Deutsche Bank stock.

And it doesn't end there. Khuzami lists the following asset holdings as of June 2009:

• Federated US Treasury Cash Reserves: $1,001-$15,000
• US Treasury Cash Reserves: $1,000,001-$5,000,000
• Fidelity Advisor New Insights Fund: $15,001-$50,000
• Henderson Int'l Opportunities Fund: $15,001-$50,000
• Deutsche Bank Cash Account Pension Plan: $100,001-$250,000
• DB Stable Value Fund: $1,001-$15,000
• Goldman Sachs Mid Cap Value Fund: $1,001-$15,000
• • Dodge and Cox Int'l Stock Fund: $50,001-$100,000
  • SSGA Money Market Fund: $15,001-$50,000
  • Delaware Emerging Markets: $50,001-$100,000
  • Gateway Fund (401k): $15,001-$50,000
  • Third Avenue Real Estate Fund (401k): $15,001-$50,000
  • Touchstone MidCap Growth Class A (401k): $15,001-$50,000
  • Wells Fargo Endeavor Select FD (401k): $15,001-$50,000
  • Yacktman Fund (401k): $15,001-$50,000
  • PIMCO Real Return Class A (401k): $50,001-$100,000
  • Principal Short-Term Fixed Income (401k): $1,001-$15,000
  • Personal Residence - New York (Gross Rental Income): $1,000,001-$5,000,000
  • Deutsche Bank Common Stock (Vested Amount Compensation): $100,001-$250,000
  • Vanguard 529 Moderate: $50,001-$100,000
  • • Vanguard 529 Aggressive: $1,001-$15,000
    It appears Mr. Khuzami has done quite well while working in the private sector, undoubtedly defending his German employer from precisely the same actions he, or someone else at the SEC, may soon charge the firm was defrauding investors by. His total disclosed asset range from $2,525,000 to $11,375,000. It is also ironic that nearly half Mr. Khuzami's assets are contained in real estate, and not to mention that a substantial amount of his assets are also contained in Deutsche Bank plans as well as DB stock deferred comp. In fact, let's take a look at that deferred comp of $100,001-$250,000 a little closer.
    
    
    

    It appears the SEC's Enforcement Director has between $100,001 and $250,000 in DB deferred stock compensation, which becomes payable in August 2010. Obviously this is not a trivial number. And while Khuzami may have recused himself from pursuing DB for CDO infarctions, that does not mean that some other SEC enforcer (surely, their $1 billion a year budget allows them at least more than one enforcement professional) would not be able to go after DB. The problem as we see it is that since the announcement of the SEC case against Goldman the firm has lost about 25% of its market cap. It is conceivable that DB, which dabbled far more in CDOs, and thus the SEC would have a much stronger case agaisnt the bank, would thus lose far more of its market cap should the SEC announce a case against the Germans. In fact, we could be looking at Mr. Khuzami's Vested Deferred Compensation value dropping from $100,001 - $250,000 to maybe even as low as $15,001-$50,000. Then again, this becomes irrelevant after August, when the former DB GC will have collected all his dues. Does this mean we should expect nothing from the SEC against Deutsche Bank for at least 4 more months? And is September 1 the day when the SEC formally announces charges against Deutsche? We would love to get the SEC's feedback on this.

    
    

    Mr. Khuzami's potential conflicts of interest do not end with his open exposure to Deutsche Bank. His Schedule A appendix indicates that the man has open equity positions with firms such as Bank of America, Deutsche Bank, and JP Morgan. To wit:

    

    

    
    

    Would this mean that Mr. Khuzami, and thus the entire SEC Enforcement Division, if judging by the Deutsche Bank case study, would recuse itself of investigating these three firms from an enforcement standpoint?

    We certainly do not begrudge Khuzami's generous winnings as part of the private sector. If anything, any borderline criminal activity he may have helped cover up as GC of Deutsche (an act he was supposed to do so no ill-will there) should provide him with the knowledge to prosecute just such activity. However, when the head of the main US regulator's enofrcement body is so terminally ensnared in not just the Wall Street complex, but in the very fabric of Keynesianism (that up to $5,000,000 Treasury holding for example and not to mention his up to $5,000,000 rental property), the population should ask just how extremely biased this man can be when prosecuting the very system that allows him to have up to $11 million in assets currently tied in to the perpetuated status quo. Surely, should the Fed, and the market in general, be "surprisingly" uncovered to be the same ponzi construct as Madoff's pyramid scheme, Khuzami, and who knows how many other people, stand to lose virtually the bulk of their assets. This makes them very much conflicted in any real enforcement action, and certainly not independent or impartial. Perhaps Dodd, in his joke of a bill, can consider just how to establish a securities regulator which by its very nature is notconstantly in bed with the very subject it is supposed to be investigating.

Two more foreign banks in the news........ HSBC and UBS

http://www.businessinsider.com/hsbc-may-end-up-paying-a-18-billion-money-laundering-fine-2012-12

HSBC May End Up Paying A $1.8 Billion Money Laundering Fine

Carrick Mollenkamp and Brett Wolf, Reuters | Dec. 5, 2012, 8:12 PM | 254 | 3

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NEW YORK/WASHINGTON, Dec 5 (Reuters) - HSBC Holdings Plc might pay a fine of $1.8 billion as part of a settlement with U.S. law-enforcement agencies over money-laundering lapses, according to several people familiar with the matter.

The settlement with Europe's biggest bank - which could be announced as soon as next week - will likely involve HSBC entering into a deferred prosecution agreement with federal prosecutors, said the sources, who spoke on condition of anonymity.

The potential settlement, which has been in the works for months, is emerging as a test case for just how big a signal U.S. prosecutors want to send to try to halt illicit flows of money moving through U.S. banks.

An HSBC spokesman said: "We are cooperating with authorities in ongoing investigations. The nature of discussions is confidential."

HSBC said on Nov. 5 that it set aside $1.5 billion to cover a potential fine for breaching anti-money laundering controls in Mexico and other violations, although Chief Executive Stuart Gulliver said the cost could be "significantly higher."

In regulatory filings, HSBC has said it could face criminal charges. But similar U.S. investigations have culminated in deferred prosecution deals, where law-enforcement agencies delay or forgo prosecuting a company if it admits wrongdoing, pays a fine and agrees to clean up its compliance systems. If the company missteps again, the Justice Department could prosecute.

A deferred prosecution agreement could raise questions over whether HSBC is simply paying a big fine and nothing more, said Jimmy Gurule, a former enforcement official at the U.S. Treasury.

It would make a "mockery of the criminal justice system," said Gurule, who is now a University of Notre Dame law-school professor.

In his view, the only way to really catch the attention of banks is to indict individuals.

"That would send a shockwave through the international finance services community," Gurule said. "It would put the fear of God in bank officials that knowingly disregard the law."

An HSBC settlement, long rumored, has been slow in coming. Inside the Justice Department, prosecutors in Washington, D.C. and West Virginia argued over how to best investigate HSBC. According to documents reviewed by Reuters, the U.S. Attorney's office in Wheeling, West Virginia, was prepared as far back as 2010 to indict HSBC and include more than 170 money laundering counts.

Prosecutors in Washington ultimately took charge.

In June, the U.S. Senate Permanent Subcommittee on Investigations released a report saying HSBC allowed clients to move shadowy funds from Mexico, Iran, the Cayman Islands, Saudi Arabia and Syria.

The use of deferred prosecution agreements has surged in recent years because Justice Department officials believe they give prosecutors an option aside from indicting a company or dropping a case.

According to a report in May by the Manhattan Institute for Policy Research, a conservative-leaning think tank, there have been 207 deferred or non-prosecution agreements since 2004.

The agreements "have become a mainstay of white collar criminal law enforcement," U.S. Assistant Attorney General Lanny Breuer said in September during an appearance at the New York City Bar Association.

"I've heard people criticize them and I've heard people praise them. DPAs have had a truly transformative effect on particular companies and, more generally, on corporate culture across the globe."

If U.S. prosecutors agree to a deferred agreement, they still could wield a powerful legal tool by accusing the bank of laundering money.

That would be a much more serious charge than if prosecutors, in a deferred agreement, charged HSBC with criminal violations of the Bank Secrecy Act, a law that requires banks to maintain programs that root out suspicious transactions.

In March 2010, for example, Wells Fargo & Co's Wachovia entered into a deferred prosecution agreement to pay $160 million as part of a Justice Department probe that examined how drug traffickers moved money through the bank. Wachovia was accused of violating the Bank Secrecy Act, a decision that prompted criticism from some observers who thought a money laundering charge should have been employed and individual bankers prosecuted.

A charge of money laundering would be a rare move by the Justice Department and would send a signal to other big banks that the agency is intent on cracking down on dirty money moving through the U.S. financial system. (Reporting by Carrick Mollenkamp and Brett Wolf; Additional reporting by Emily Flitter and Aruna Viswanatha)

and.....

http://www.reuters.com/article/2012/12/03/ubs-libor-idUSL5E8N34DE20121203

* Settlement of rate rigging claims possible by yr-end

* UBS says cooperating fully with investigations

* UK rival Barclays fined $453 million in June

* Other banks also looking to settle

By Martin de Sa'Pinto and Steve Slater

ZURICH/LONDON, Dec 3 (Reuters) - Swiss bank UBS AG is nearing a deal to settle claims some of its staff manipulated interest rates and could reach agreement with U.S. and British authorities by the end of the year, a person familiar with the matter said on Monday.

UBS is expected to pay more than $450 million to settle claims some of its employees submitted false Libor rates, the New York Times reported earlier.

Britain's Barclays Plc was fined $453 million in June for manipulating Libor benchmark interest rates, and remains the only bank to settle in the investigation, which led to th e resignation of the bank's chairman and chief executive.

U.S. and UK regulators, which released their settlements with Barclays at the same time, are working together on the UBS investigation and could release an agreement by the end of the year, although the timing could slip into next year, the person familiar with the matter told Reuters.

The reliability of the London Interbank Offered Rate, or Libor, has been cast into doubt by the rate manipulation accusations. Libor is intended to measure the rate at which banks lend to one another and is used as a benchmark for $300 trillion of contracts and loans across the world.

UBS was the first bank globally to report suspected rate rigging, and has said it has received conditional immunity from some authorities for cooperating in their probes.

A UBS spokeswoman told Reuters that the bank was in the midst of discussions with authorities in the United States and Britain in connection with Libor investigations and has been cooperating fully with the regulatory and enforcement authorities, but gave no further details.

Britain's Financial Services Authority declined to comment beyond confirming the already established fact that the FSA is investigating UBS.

The Commodity Futures Trading Commission and the U.S. Justice Department, investigating the Libor matter in the United States, declined to comment.

Other banks are also anxious to draw a line under the probe, which is well into its second year. British bank Royal Bank of Scotland said last month it hoped to reach a settlement on its part in the rate-rigging scandal - likely to result in fines for the bank - and expected to start talks soon.

Morgan Stanley has estimated that 11 global banks linked to the Libor scandal could face $14 billion in regulatory and legal settlement costs through 2014.

Switzerland is also investigating 12 U.S., European and Japanese banks suspected of conspiring to manipulate interbank lending rates. They include Credit Suisse, Deutsche Bank, HSBC Holdings and RBS.

"In Switzerland we are still investigating the case. We are in contact with other authorities," said Competition Commission official Olivier Schaller, but provided no further details.

Tobias Lux, spokesman for Swiss regulator FINMA, said the regulator was making efforts to clarify the issue, but declined to comment further.

Reuters parent company Thomson Reuters Corp collects information from banks and uses it to calculate Libor rates according to specifications drawn up by the British Bankers Association (BBA).