CORRECTED-UPDATE 1-UBS says books 254 mln Sfr against Q2 to settle one German tax probe

Tue Jul 29, 2014 3:23am EDT

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(Corrects currency for German settlement to Swiss francs, from euros, in headline and first paragraph)

* UBS Q2 net profit 792 mln Sfr vs 690 mln year-ago

* Private bank wins 10.7 bln Sfr in net new money

* Aims to have all German clients come clean by year-end

ZURICH, July 29 (Reuters) - UBS booked a 254 million Swiss franc ($280.79 million) charge in the second quarter mainly to settle claims it helped wealthy Germans to dodge taxes, the latest in a string of lawsuits that have targeted its private banking business.

The Zurich-based lender's offices in Germany were searched last year as part of an investigation of 750 cases involving foundations, a probe sparked by a CD with details of UBS clients that was purchased by the German state of North Rhine-Westphalia (NRW).

UBS, which faces a separate probe in Germany and similar probes in Belgium and France, said it aims to have all of its German clients come clean by year-end, from more than 95 percent currently.

"The future outflow of resources in respect of such matters cannot be determined with certainty based on currently available information, and accordingly may ultimately prove to be substantially greater (or may be less) than the provision that we have recognized," the bank wrote in its second-quarter report.

The bank on Tuesday reported a quarterly net profit of 792 million Swiss francs from 690 million francs a year earlier, when results were marred by an $885 million settlement with the U.S. housing regulator over the mis-selling of mortgage-backed bonds.

The result beat expectations in an analyst poll conducted by Reuters, which averaged 774 million francs.

The settlement comes less than a week after a 15-month French inquiry into UBS escalated, with the bank put under formal investigation on allegations it laundered the proceeds of tax evasion. UBS was also ordered to stump up a 1.1 billion euro ($1.48 billion) guarantee payment, which it called "unprecedented and unwarranted" and will appeal.

Switzerland effectively ended Swiss banking secrecy in May by agreeing to join other countries in sharing tax information once the method of sharing is established as an international standard.

Meanwhile, Swiss banks have spent years attempting to clear their accounts of undeclared accounts under massive international crackdowns on tax evaders in Switzerland.

The legal problems overshadow a nearly two-year-old overhaul to shrink UBS' investment bank, abandoning riskier activities in its bond trading arm to focus on its more stable private bank.

The ultimate goal of its restructuring drive is bigger dividends. UBS aims to return at least half of its profits to shareholders if it can maintain capital - which stands at 13.5 percent under new global rules - at or above current levels through to the end of 2014 and achieve a ratio of 10 percent when applying its own stress tests.

Profit at its private bank plunged 43 percent on the cost of the German settlement, and a key margin on assets also edged lower.

The unit, which is measured by its ability to win fresh funds from new and existing clients, took in 10.7 billion francs in net new money.

In its outlook, the bank said global and fiscal tensions as well as a summer lull would weigh on market conditions, but didn't elaborate.

The tax probes are only one of UBS' legal worries: it is among a handful of large banks that global regulators are investigating over alleged rigging in the $5 trillion-a-day foreign currency market. In March, UBS said it had widened an internal probe of forex to include precious metals trading.

In the U.S., authorities are probing UBS for criminal fraud after a former broker in Puerto Rico allegedly directed clients to improperly borrow money to buy mutual funds that later plunged, Reuters reported last month.

The Swiss bank was fined $780 million for helping wealthy U.S. citizens avoid taxes in 2009.

As of Monday, shares in UBS had fallen by almost 2 percent so far in 2014, outperforming cross-town rival Credit Suisse , which was down 6.7 percent on the year, but lagging a 1.1 percent rise in an index of European banks.

Credit Suisse last week posted its biggest loss since the financial crisis in 2008, the result of a 1.6 billion franc fine from U.S. authorities for helping its clients evade taxes.

Smaller competitor Julius Baer posted a higher-than-expected rise in first-half profit.

($1 = 0.9043 Swiss Francs)

($1 = 0.7447 Euros) (Reporting by Katharina Bart and Joshua Franklin)

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