UBS' Legal Life After French Ruling
After years of delay, UBS is poised to put to rest a French
investigation into money laundering and tax offenses. Its appeals ruling – due
shortly after midday on Monday – comes just weeks after Barbara Levi took over
as chief counsel, from long-standing lawyer Markus Diethelm, the architect of
UBS' post-financial crisis legal clean-ups.
Financially, France may hurt: it has stowed 450 million
euros ($507 million) against a potential multi-billion euro penalty. It has
posted 1 .1 billion euros in «caution,» or corporate bail.
The potentially more harmful side effect may be if UBS is
convicted of money laundering – not a good look for the world’s largest wealth
manager in one of its biggest European markets. More importantly, a conviction
on the charges may lead clients in U.S. public pensions or major institutional
clients in Asia to reconsider their business with UBS.
The «French» problem can theoretically happen in any of UBS’
big European markets. UBS recently settled a similar investigation in Belgium
for a comparatively mild 49 million euros. The wealth manager lists «inquiries
regarding cross-border» private banking prominently in its litigation issues –
the question is whether other countries would pursue UBS (or other Swiss banks)
as doggedly as Parisian prosecutors have.
One already has: Italy levied an 1.5 million euro fine
against UBS last September, which the bank is appealing, it disclosed in the
annual report of its European bank. Several current and former employees in
Italy as well as the Italian branch are «the subject of criminal and
administrative legal proceedings,» the bank said.
After France, this U.S. investigation remains UBS’ most
vulnerable spot which could reportedly cost billions to settle: it is accused
of defrauding investors by selling residential mortgage-backed securities in
the run-up to 2008/2009. A big part of the Swiss bank’s argument is that it
wasn’t a major issuer, as big U.S. banks were, and itself suffered damages of
the crisis-era instruments.
The court case isn’t expected to be heard anytime soon – and
may yet be settled outside of court, as rivals like Barclays have done. UBS has
stowed an undisclosed amount against a potential fine.
The Swiss wealth manager kissed off at least $860 million
when the U.S. family office-hedge fund run by ex-«Tiger Cub» Bill Hwang
(pictured below) collapsed in March. A pittance compared to the more than $5
billion Credit Suisse sent down the drain, it is nevertheless striking for UBS
– a far more conservative wealth manager than its crosstown rival.
The bank apologized and isn’t expected to subject itself to
the same invasive treatment as did Credit Suisse, which released an excoriating
report conducted by outside examiners. However, UBS can be expected to give
some clarity on how Archegos was able to wreak the considerable damage it did.
Also, as U.S. regulators probe how the Archegos unwind hit
so much of Wall Street, UBS may be subject to higher capital requirements on
prime brokerage – a fate that Credit Suisse is spared, because it is exiting
the business.
Puerto Rico:
UBS faces a slew of lawsuits from investors who lost money
on bonds issued by the U.S. territory which lost roughly $3 billion in value in
a major sell-off. Its bankers are accused of neglecting their fiduciary duty to
clients.
The bank’s previous CEO Sergio Ermotti in 2018 conceded to
broadcaster «CNBC» that UBS «could have done things better». The issue is less
financially stunning for UBS than France or RMBS because most of the litigation
is being handled individually, and sums are comparably smaller.
An eight-year-old investigation into how UBS and other
global investment banks allegedly rigged foreign exchange markets or colluded
on Libor rates forms the most voluminous share of the Swiss bank’s litigation
risks on paper, but it is one of the least meaningful for shareholders.
The main reason is that UBS blew the whistle on its peer
group in exchange for milder treatment and in some cases full immunity. The
settlements continue to trickle through for various jurisdictions including
Hong Kong, the U.S., and Singapore. Notably, the Swiss anti-trust watchdog
doesn’t recognize UBS’ full immunity.
The bank was wrong-footed by the possibility that criminal
charges in a revived money laundering investigation might be levied against CEO
Ralph Hamers.
The 55-year-old Dutch banker two months ago passed a key
test to putting the matter to rest definitely.
However, both the bank as well as Diethelm, who is
spearheading the issue even after handing over to Levi last month, won't breath
easy until the threat of charges against the CEO is banished.
Comments
Post a Comment