UBS records higher first quarter 2014 profits

Switzerland's largest bank UBS on Tuesday posted a net profit of 1.05 billion francs ($1.2 billion) for the first quarter of 2014, up seven percent from the first three months of the previous year.

UBS records higher first quarter 2014 profits
Photo: The Local

In addition to reporting the surprisingly strong results the bank announced an overhaul of its legal structure targeted at benefiting shareholders.
Its first quarter profits beat the expectations of analysts polled by the AWP financial news agency, who had anticipated a net profit of 855 million francs.
UBS chief Sergio Ermotti and chairman Axel Weber hailed the result as "a solid performance achieved despite a volatile operating environment."
The bank's sales were meanwhile down seven percent to 7.2 billion francs, slightly lower than analyst expectations.

UBS announced separately that it was creating a new group holding company aimed at making it easier to separate any divisions that might run into difficulties and shield the rest.
The new holding company is to be set up through a share-for-share exchange offer starting later this year if it receives the necessary regulatory approvals.
It is meant to help the bank avoid a repetition of the 2008 crisis, when Switzerland had to step in and save the bank from tanking and dragging the entire Swiss economy down with it.
The new structure should bring the bank in line with Swiss requirements implemented after that crisis to ensure banks do not become "too big to fail", allowing it to cut back on the amount of money it has to set aside to cover any possible losses.
"Following the completion of the transaction, UBS expects to propose a supplementary capital return of at least 0.25 francs per share to shareholders of the new group holding company," the bank said.

 Shares rise

At the same time, UBS said it had pushed its cash holding ratio up to 13.2 percent, passing its 13-percent target for all of 2014 and keeping well in line with the global Basel III rules, drawn up after the global financial crisis to make banks reinforce their capital reserves.
"Surpassing the 13-percent . . . ratio target we set two years ago is a major milestone for the firm and its stakeholders," Ermotti said in the earnings statement.
Passing this mark had been one of the preconditions set by the bank for hiking the capital returns it dishes out to shareholders.
Investors welcomed the news, pushing the UBS share price up 0.88 percent to 18.43 francs in mid-morning trading as the Swiss stock exchange's main SMI index rose 0.13 percent.
In its earnings release on Tuesday, UBS said its wealth management division, which it is in the process of expanding, posted a pre-tax profit of 659 million francs, pulling in 10.9 billion in net new cash during the quarter, with the Asia Pacific and emerging markets contributing the most.
Its Americas wealth management activities, which are accounted for separately, notched up a pre-tax profit of $284 million and booked $2.1 billion in new money.
UBS's long struggling investment bank division, meanwhile, posted a pre-tax profit of 549 million francs, it said.

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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”.