DealZone

A bitter U.S. tax row has hit UBS harder than many investors thought and the Swiss wealth management giant is still losing more rich client money than what it manages to attract, its disappointing third-quarter results showed.

UBS shares tanked and the data suggest turnaround maestro Oswald Gruebel may have to work a bit harder to bring home the profit that will convince the super rich to stick around.

“Reputation is a fragile dimension, painstaking to build but easily broken. It will take a more than persuasive convincing for wealthy clients to fully perceive the firm as a safe haven again, even though there are positive shoots of normality returning,” said Cubillas Ding, senior analyst at international financial research and consulting firm Celent.

Will the arrival of Merrill Lynch veteran Robert McCann, hired to restore trust in UBS’ battered American wealth franchise, improve things?

Photo credit: The U.S. flag flies outside the U.S. headquarters of Swiss bank UBS in New York August 4, 2009.  REUTERS/Brendan McDermid (UNITED STATES BUSINESS)

UBS shares are on the rise after news of a deal in principle to end U.S. government tax litigation against the Swiss wealth management giant. This probably involves the bank handing over the names of 5,000 U.S. clients holding secret Swiss accounts, or 10 percent of the names Washington was after. The best news for investors right now is there is no fine involved.

Hardly the end of uncertainty the market would normally crave. While the deal will not formally violate Swiss bank secrecy rules, it’s hardly going to end pressure on Switzerland and UBS — and the entire offshore financial world — to stop shielding the wealthy from paying their dues.

For now, the ebbing threat of a fine, removing the risk of more capital-raising by UBS, is being welcomed. Now, all the bank needs is a business model built on better citizenship. Perhaps they can manage something dramatic before they report quarterly results tomorrow. UBS is expected to post a second-quarter net loss of 1.1 billion Swiss francs ($1 billion). It lost billions of business from wealthy clients after it handed over about 250 names in February to settle a separate U.S. criminal probe.

Embattled Swiss bank UBS struck a deferred prosecution agreement with the U.S. Justice Department that will cost them $780 million. It could have been worse.

Though paying a hefty fine, the Swiss bank is paying ZERO punitive fines, despite conceding that they helped U.S. residents – estimated to number 250 — avoid paying income taxes over an eight year period.

The agreement announced on Wednesday specifies that UBS will give up $380 million of profit from eight years of cross-border business — of which $200 million will be paid to the U.S. Securities and Exchange Commission and $180 million to the Department of Justice — and $400 million for back taxes, tax penalties and restitution for unpaid taxes and interest .