Recently, Swiss bank UBS Group AG UBS increased its litigation provisions by about $382 million. This follows the penalty of EUR 4.5 billion ($5.1 billion), slapped on the bank last month, by the French trial court of tax fraud and money laundering, against allegations that it helped its clients in the country evade taxes.
UBS had been persistently denying any criminal wrongdoing throughout the investigation and during the trial, and therefore, has contested the verdict and appealed. Per French law, an appeal made by the bank has shelved the judgment put forward by the trial court and transferred the case to the Court of Appeals.
“In light of the first judgement and considering the full range of potential final decisions, the provision on our balance sheet reflects our best estimate of possible financial implications," the group's chairman and CEO said in a joint letter to shareholders. “That said, we still believe the verdict should be reversed, at which time we would release the provision," the note further stated.
Notably, at least two more verdicts are expected before the appeal process reaches a conclusion.
Though UBS did not specify the amount that has been boosted in provisions for France, yet, the total litigation provisions have been raised significantly to $2.83 billion from the $2.45 billion (£1.86 billion) previously reported at the end of 2018. However, increased provisions lowered the 2018 net profit to $4.5 billion from $4.9 billion, reported this January.
Following a seven-year probe into such allegations and abandoned settlement negotiations, the bank was liable to counter allegations of illegally soliciting clients in France.
Per investigators, UBS employees implored business from wealthy executives or athletes at the time of sports or music events in France requesting them to put money in Switzerland. Notably, assets worth 10 billion Euros ($10.75 billion) were illegally transferred in Switzerland in 2004-2012 by French clients. Later, the investigation also included money-laundering charges against the bank.
Following the failure of settlement talks on account of UBS’ refusal to plead guilty, the bank was ordered to pay a €1.1-billion bail amount in July 2014. Apprehending adverse impact on its business, UBS restrained from pleading guilty. The bank appealed against the verdict, citing that the bail amount as "unprecedented and unwarranted”.
Notably, UBS pressed for the figure equivalent to €300 million, which the bank paid as settlement in 2014, to German authorities related to a similar probe into whether or not the banking giant helped clients in the country evade taxes.
Nevertheless, after losing an initial appeal against the €1.1-billion bail payment in September 2014, the bank’s appeal was rejected again in December 2014 by France’s apex appeals court — Cour de Cassation. Disappointed with the ruling, UBS had proposed to contest the court’s decision, including the right to a fair trial, at the European Court of Human Rights.
In March 2017, according to a French judicial official, the investigating panel from PNF — the national financial prosecutor office — claimed the charges against the bank as valid and ordered the case to be sent to trial at a later date which commenced in October 2018.
Nonetheless, UBS has disagreed with the allegations and legal analysis, strongly defending itself and looks forward to a fair proceeding.
We believe the ongoing investigations on banks will be a step ahead toward reducing the huge losses incurred due to offshore tax evasion. Regulatory authorities are investigating scandals, with a determination to put forward a landmark judgment to curb such shrewd practices. However, increase in provisions related to such legal issues adversely impact financials.
Shares of UBS have lost around 22.1% in the past six months as against 1.5% growth recorded by the industry.
UBS Group AG currently carries a Zacks Rank #4 (Sell).
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