Oswald Grübel's resignation as head of UBS over the weekend had less to do with a trading scandal than with a clash with the board on the role of investment banking to the business, analysts said on Monday.

"/> Oswald Grübel's resignation as head of UBS over the weekend had less to do with a trading scandal than with a clash with the board on the role of investment banking to the business, analysts said on Monday.

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Boardroom clash fuelled Grübel exit: analysts

Oswald Grübel's resignation as head of UBS over the weekend had less to do with a trading scandal than with a clash with the board on the role of investment banking to the business, analysts said on Monday.

Although Grübel said he was resigning to take responsibility for a rogue trading scandal that lost his bank $2.3 billion (€1.7 billion), “previously he said he would not resign” because of the fraud, Peter Thorne of Swiss brokerage Helvea told AFP.

Instead, Thorne said, Grübel’s departure was linked to his disagreements with the bank’s board, which has seemed interested in reducing the size of the group’s investment banking unit.

Grübel seemed “reluctant” to reduce the size of the unit, Thorne said.  

Following Grübel’s announcement, UBS chairman Kaspar Villiger said the bank’s investment division, which was responsible for heavy losses during the US subprime mortgage crisis and accused of tax evasion, “will be less complex, carry less risk and use less capital.”

It will now be up to his successor, interim CEO Sergio Ermotti, chairman and CEO of UBS Group Europe, Middle East and Africa, to carry on.

Dominique Biedermann, the director of the Ethos Foundation of institutional investors, told AFP that although he would not pronounce himself on the causes of Grübel’s departure, “the only thing I know for sure, is that Grübel was pushing for investment banking.”

“And now UBS questions whether it wants to reduce the role of investment banking,” he said.

Biedermann, whose foundation manages pension fund invstments, said that in the past six or seven years UBS’ investment banking services had “cost more than it brought in”, which explained the board’s desire to lessen its impact on the bank, although it still had not clearly explained its its new position.

Analysts at the Royal Bank of Scotland, however, said that there was unlikely to be a major modification of the UBS’ investment banking division until at a permanent CEO was chosen.

“The eagerly expected strategic review of the investment bank could be delayed,” it said in a note to investors.

“We find it hard to see how such a review could be concluded without the possibility for the new CEO to shape the outcome,” Royal Bank of Scotland said.

It however also welcomed a reduced investment banking sector, saying the bank would remain attractive to investors with a “materially smaller, much less capital intensive investment bank.”

But the Swiss Banker’s Association, without referring to a specific bank, told AFP that universal banking was an important “pillar” for Swiss banks.

“The model of universal banking has all of a bank’s activities under one roof,” Sindy Schmiegel Werner, a spokeswoman at the Swiss Bankers Association said.

“That is the case for Switzerland’s two biggest banks,” she said, adding that it was “important for the big banks to base all their activities on a variety of pillars — from private banking to asset management to investment banking.”

“There is such a great advantage for customers who can benefit from a single source for their needs,” she added.

Nevertheless, analysts remained convinced of the solidity of UBS.

“In an environment where investors remain highly concerned about eurozone stability, wholesale funding and capital adequacy, we believe that UBS’s Swiss domicile and strong balance sheet will continue to make the shares an attractive relative investment,” Nomura said in a note to its investors.

Standard and Poor’s said the bank’s long term debt grade of A+ on watch “with negative implications” remained unaffected by Grübel’s resignations.

“A reshaping of the investment bank into a lower-risk business with more-reliable performance would likely support the current ratings,” it said.

UBS’s share price, which had fallen slightly at the market’s opening, was up 2 percent in the afternoon and trading at 10.32 francs per share.

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Switzerland’s UBS faces €3.7-billion fine as crucial court ruling looms

A Paris court will rule Wednesday on whether Swiss banking giant UBS illegally tried to convince French clients to hide billions of euros in Switzerland, charges which prompted prosecutors to seek a record €3.7-billion fine.

Switzerland's UBS faces €3.7-billion fine as crucial court ruling looms
UBS denies charges it helped French clients evade tax and says it will defend itself "vigorously". Photo: AFP

The trial opened last autumn after seven years of investigations, launched when several former employees came forward with claims of unlawful conduct. 

The move came as authorities across Europe cracked down on tax evasion and dubious banking practices in the wake of the global financial crisis which erupted in 2007.

The pressure eventually forced Switzerland to effectively end its tradition of ironclad bank secrecy, by joining more than 90 countries which agreed to automatically share more client account information among each other.

In the UBS case, French authorities determined that more than €10 billion had been kept from the eyes of tax officials between 2004 and 2012.

The National Financial Prosecutor's office urged a €3.7-billion ($4.2 billion) fine, the largest ever sought in France, saying the bank and its directors “were perfectly aware that they were breaking French law” by unlawfully soliciting clients and helping them evade French taxes.

They also sought a €15 million fine for UBS's French subsidiary, and fines of up to €500,000 for six top executives, including Raoul Weil, the former third-in-command at UBS, and Patrick de Fayet, formerly the second-ranking executive for its French operations.

In addition, lawyers for the French state, which is a plaintiff in the case, asked for €1.6 billion in damages.

UBS, which was ordered to post €1.1 billion in bail, has denied the charges and said its operations complied with Swiss law.

It also says that it was “unaware” that some French clients had failed to declare assets in Switzerland, and that prosecutors have not produced any proof, such as client names or account numbers, to back up their fraud claims.

The case is being closely watched by industry executives at a time when Paris and other European capitals are hoping to lure multinational banks from London as Brexit looms.

'Milk tickets'

UBS is accused of organising or inviting prospective clients to prestigious outings such as the French Open or luxury hunting retreats, where UBS's Swiss bankers would meet their “prospects” — something they were not allowed to do under French law.

UBS France directors then used notes called “milk tickets” to keep track of how many “milk cans” – amounts of money – were transferred to Swiss accounts.

They say the system was merely a way to balance out bonuses due to French bankers who were effectively losing a client to their Swiss peers, and the notes were later destroyed.

But investigators claim the “milk tickets” were proof that UBS had a parallel accounting system for keeping the transfers off its official books.

Only one “milk ticket” was found during the inquiry, prompting defence lawyers to argue there was no proof to justify claims of a massive fraud.

Yet prosecutors pointed to the roughly 3,700 French UBS clients who later took advantage of an amnesty offer to regularise their tax declarations with the French authorities.

UBS has been embroiled in a series of similar cases, most notably in the United States, where the authorities said the bank used Switzerland's banking secrecy laws to help rich clients avoid taxes.

In 2009 it paid $780 million to settle charges it helped thousands of American citizens hide money from the Internal Revenue Service, and agreed to turn over information on hundreds of clients, severely denting Switzerland's long tradition of shielding banking clients and their operations from prying eyes.

That case was also prompted by a former American UBS employee turned whistleblower, Bradley Birkenfeld, whose book “Lucifer's Banker: The Untold Story of How I Destroyed Swiss Bank Secrecy” was published in 2016.

Last November UBS was again sued by US authorities, who accuse the bank of misleading investors over the sale of mortgage-backed securities in 2006 and 2007, just before the financial crisis struck.

UBS has denied the charges and said it will defend itself “vigorously”.