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Aug 4, 2009

UBS positions itself for turnaround

UBS has given investors,depositors and shareholders some nasty surprises in the past
couple of years. However, under a new management team and with the damaging American tax dispute being settled, the bank is positioned for recovery.
True, the scars of recent disasters are still visible. UBS made another big loss of “just” 1.4 billion Swiss francs in the second quarter, albeit less than the deficit of almost 2 billion Swiss francs in the previous one. However, once one-offs — like
a 1.2 billion hit from an improvement in its own credit, a restructuring charge and a goodwill write-down on the sale of its Pactual business in Brazil — are taken into account, the bank turned in a 971 million Swiss franc profit, its best performance in two years.
Both investors and depositors continue to leave in droves, disaffected by UBS’s behaviour. Luxembourg’s financial regulator accused the bank of “serious failure” in its custody of a $1.4 billion fund that invested with fraudster Bernard Madoff, a
charge that UBS strongly rebuts.
U.S.-based customers, many of whom chose UBS because of Switzerland’s famed bank secrecy, have discovered that the bank cannot withstand the twin pressures of an investigation by America’s tax authorities and a political shift against tax havens. UBS’s shares have sharply rallied since news of the settlement emerged last week. However, the details are still being thrashed out between the two governments. The dispute has already damaged UBS’s private bank: the wealth management and
Swiss bank arm saw net outflows of 16.5 billion Swiss francs of client money over the quarter. If UBS does have to hand over thousands of previously confidential names, it may continue to lose clients.
Moreover, any bigger dent in Swiss banking secrecy will impose more collateral damage across the entire Swiss banking industry. This is understood by the Swiss government, which had signalled that punishment of UBS, perhaps in the shape of a
fine, was preferable to allowing foreign tax authorities to go on “fishing expeditions” for tax fugitives.
So far, however, other Swiss banks have avoided the worst of the damage. Julius Baer <BAER.VX>, which reported first half results on July 27, has suffered outflows from GAM, its troubled hedge fund arm, which it is planning to list separately. But it has attracted inflows into its private bank.
Oswald Gruebel, UBS’s newish chief executive, is also making progress in cutting costs and in de-risking the bank. Risk weighted assets fell 11 percent over the quarter, and the bank’s tier 1 capital ratio was 13.7 percent, one of the highest in
Europe. UBS’s leverage ratio is now 3.5 percent, well above the 3 percent minimum stipulated by the Swiss financial regulator.
UBS may never reclaim its reputation as a bastion of banking solidity, but when compared to the depths it has plumbed in the past two years it is on the path to recovery at last.

Jul 9, 2009

COLUMN – Swiss guard bank secrecy: Margaret Doyle

Margaret Doyle is a Reuters columnist. The opinions expressed are her own

By Margaret Doyle

LONDON, July 9 (Reuters) – The Americans are on a fishing trip. The fish they are after are big: 52,000 of their fattest fellow citizens, and they have invited the Swiss to land them. Understandably, the Swiss are not keen to haul in the net and hand over the source of much of their income.

The US demand that UBS <UBSN.VX> <UBS.N> disclose the names of 52,000 American citizens suspected of tax evasion has galvanised the Swiss government into threatening to bar the bank from doing anything of the sort.

    • About Margaret

      "Margaret Doyle is a Reuters Breakingviews columnist, based in London. She writes about investment banking. She has been a journalist for over 14 years. She has written for The Daily Telegraph and The Economist and presented various radio programmes for the BBC. She began her career as a consultant at McKinsey & Co. She has an economics degree from Trinity College, Dublin and an MBA from Harvard Business School, which she attended as a Fulbright scholar. She is a Conservative Member of Westminster City Council."
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