UBS Group’s two biggest legal cases in years are hitting the final stretch in a test of chief executive Sergio Ermotti’s strategy of taking on French and US authorities.
Switzerland’s largest lender was hit with a long-expected fraud lawsuit by the US that accused it of fuelling the 2008 financial crisis by deceiving investors who bought tens of billions of dollars of risky mortgage-backed securities.
The French state and prosecutors are asking for as much as 5.3 billion euros ($6bn) in fines and damages over allegations it helped clients hide money from authorities.
UBS’s hard bargaining has resulted in both cases going to court, often a last resort for banks, with the worst-case scenario being huge fines and lengthy legal battles. The cases are among a series of such obstacles Zurich-based UBS has faced since the start of the financial crisis a decade ago, including a $1.5bn fine in 2012 for rigging the Libor benchmark.
Tax-related investigations have also cut into the bank’s reserves: it paid $780 million in the US nearly a decade ago and about 300 million euros in Germany in 2014.
UBS stocks declined by as much as 3.1 per cent in Zurich and were trading 2.9 per cent lower at 14.08 francs as of 9.17am Swiss time.
“The French are demanding a lot - probably ten times more than what I estimate UBS has provisioned,” Daniel Regli, an analyst at MainFirst in Zurich said. “At a maximum, half of that amount would be realistic. The Swiss bank “has gone the route of fighting cases, most have come to agreements with authorities. Time will tell if this more aggressive approach works out.”
It is an approach that worked for British bank Barclays. It fought back against the Department of Justice in a similar case two years ago, when negotiations broke down over the size of the penalty involved. Federal prosecutors in Brooklyn filed a civil complaint against the bank, but ultimately settled the case earlier this year for $2bn, less than half of what US authorities had originally demanded.
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The UBS case in France ended up in court after settlement talks between the bank and authorities broke down in March 2017 over the size of the fine. UBS had been pushing to settle the French investigation for less than the 300 million euros it paid to resolve a similar case in Germany.
Prosecutors in France asked the court to impose a record fine of 3.7 billion euros that would be commensurate with UBS’s size, the nature of the crime and the damage to society. The French state, which is a plaintiff in the Paris trial, is seeking 1.6 billion euros from the bank in addition to any court-imposed penalties.
“The underlying facts are of an exceptional breadth and a systematic nature,” Prosecutor Serge Roques said Thursday during his closing arguments at the month-old trial.
UBS called the prosecution’s fine calculation “irrational” and said the trial was ordered by lead French investigators on the basis of “erroneous conclusions.”
Before the court case started, UBS had to post 1.1 billion euros in bail. The bank had denied all the allegations.
Roques argued that the fine should be based on 2015 evidence from French investigators that found almost 4,000 French residents with Swiss UBS accounts made late tax payments on assets worth around 3.8 billion euros.
UBS said the calculation was the result of “a simplistic approach taking into account the full amount regularized by French taxpayers without any proof of an underlying offense.”
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2.0
Director: S Shankar
Producer: Lyca Productions; presented by Dharma Films
Cast: Rajnikanth, Akshay Kumar, Amy Jackson, Sudhanshu Pandey
Rating: 3.5/5 stars
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How to apply for a drone permit
- Individuals must register on UAE Drone app or website using their UAE Pass
- Add all their personal details, including name, nationality, passport number, Emiratis ID, email and phone number
- Upload the training certificate from a centre accredited by the GCAA
- Submit their request
What are the regulations?
- Fly it within visual line of sight
- Never over populated areas
- Ensure maximum flying height of 400 feet (122 metres) above ground level is not crossed
- Users must avoid flying over restricted areas listed on the UAE Drone app
- Only fly the drone during the day, and never at night
- Should have a live feed of the drone flight
- Drones must weigh 5 kg or less
The White Lotus: Season three
Creator: Mike White
Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell
Rating: 4.5/5
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Name: Peter Dicce
Title: Assistant dean of students and director of athletics
Favourite sport: soccer
Favourite team: Bayern Munich
Favourite player: Franz Beckenbauer
Favourite activity in Abu Dhabi: scuba diving in the Northern Emirates
