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UBS Group Unit Under Investigation By Italy's Prosecutors

Zacks Equity Research

UBS Group AG’s UBS European subsidiary, UBS Europe, is accused of money laundering and helping Sofia Sgr, an asset-management firm, to deceive clients by charging higher fees. The bank is also being indicted of concealing the fraud and obstructing regulators’ work. The firm is currently under investigation by prosecutors in Milan.

Per an article by Bloomberg, between 2013 and 2017, the asset manager used UBS Europe as an intermediary to deposit and shift clients’ funds. Sofia charged higher-than-average fees from about 117 clients. The firm was liquidated after the case became public.

Former head of UBS Europe in Italy, Fabio Innocenzi, is on the radar for this investigation. Per the Italian law, the companies involved can be held responsible for the actions of their employees.

Per the article, prosecutors might seek indictments after notifying the concerned individuals and firms that the investigation is now completed.

The Swiss bank has been involved in various probes and litigations, which keep its legal costs high. In November 2019, it was fined S$11.2 million ($8 million) by the Monetary Authority of Singapore for deceiving clients over prices of bonds and other structured products. Similarly, it was required to pay about HK$400 million ($51 million) as fine to The Hong Kong Securities and Futures Commission for having overcharged up to 5,000 clients in the period between 2008 and 2015.

Our Take

As a Swiss systemically relevant bank, UBS Group is subject to heightened regulatory supervision, which keeps related costs elevated. Also, top line remains under pressure due to persistent negative interest rates in the domestic economy.

Nevertheless, the company continues to execute restructuring initiatives in order to free resources and invest in profitable areas to service clients with greater dexterity, improve quality and speed to market.

UBS Group has gained 13.6% over the past six months compared with 1.1% growth of the industry it belongs to.

Currently, UBS Group carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some other stocks in the finance space worth considering are Sallie Mae SLM, UMB Financial Corporation UMBF and State Street Corporation STT. All these stocks flaunt a Zacks Rank #1.

The Zacks Consensus Estimate for Sallie Mae has been raised 29% for the current year in the past 30 days. The company’s share price has gained 29.7% in the past six months.

UMB Financial has witnessed 1.3% upward revision in earnings estimates for current year in the past 30 days. Its share price has risen 4.8% in the past six months.

State Street’s shares have gained 40.6% in six months’ time. Its earnings estimates for current year have moved up 6.6% in the past 30 days.

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