Our correspondent Andreas Frank writes: UBS AG booked a near $300 million charge in the second quarter mainly to settle claims it helped wealthy Germans to dodge taxes, the latest in a string of lawsuits that have targeted its private banking business.
Back in late 2012, German state prosecutors in the city of Bochum begun an investigation into UBS clients on suspicion of personal tax evasion. UBS were just one of several Swiss banks that formed part of the probe and it took the opportunity in its latest quarter to finally settle with the German authorities and resolve the issue.
The Zurich-based lender’s offices in Germany were searched last year as part of a probe sparked by a CD with details of UBS clients that was purchased by the German state of North Rhine-Westphalia (NRW).
UBS, which faces a separate probe in Germany and similar probes in Belgium and France, took a 254 million Swiss franc charge and said it aimed to have all its German clients come clean by year-end, from more than 95 percent.
Yet the charge is only one of a slew of legal issues with which the bank is contending. It hiked its provisions against future litigation to nearly 2 billion francs but warned this might still not be enough to cover possible fines and charges.
The bank has taken a strategic decision to scale back its risky investment banking operations in favour of private banking and asset management, but remains under threat from possible past market transgressions.
The settlement in the German tax case comes less than a week after a 15-month French inquiry into UBS escalated, with the bank put under formal investigation on allegations it laundered the proceeds of tax evasion.
UBS was ordered to stump up a 1.1 billion euro ($1.5 billion) guarantee payment, which it called “unprecedented and unwarranted” and will appeal.
Switzerland effectively ended its long-cherished banking secrecy in May by agreeing to join other countries in sharing tax information, once a standard method of sharing is agreed.
Meanwhile, Swiss banks have spent years attempting to clear their accounts of undeclared accounts under massive international crackdowns on tax evaders.
The legal problems have overshadowed a near two-year overhaul to shrink UBS’ investment bank, abandoning riskier activities in its bond trading arm. The ultimate goal of its restructuring drive is bigger dividends. UBS aims to return at least half of its profits to shareholders if it can maintain capital – which stands at 13.5 percent under new global rules – at or above current levels through to the end of 2014 and achieve a ratio of 10 percent when applying its own stress tests.
Profit at its private bank plunged 43 percent on the cost of the German settlement. The unit, which is measured by its ability to win fresh funds from new and existing clients, took in 10.7 billion francs in net new money.
Swiss bank UBS saw 15.4 percent growth in its wealth management business for 2013, firmly securing its position as world leader in the sector, with close to $2 trillion of assets under management.
If growth continues at its current rate, the bank – which currently runs $1.96 trillion – will become the first wealth manager to hit the $2 trillion “milestone”. This would mark a transition in the scale of global wealth management.
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