Swiss cabinet meets on UBS as U.S. tax talks drag

By Lisa Jucca

BERNE (Reuters) - The Swiss cabinet held a special meeting on Monday to discuss a snag in talks to settle the U.S. tax evasion case hanging over bank UBS, the sternest ever challenge to Swiss bank secrecy rules.

The Swiss government, currently in recess, held an extraordinary meeting, an official said, but declined to give any detail until a final deal is done.

Switzerland and the United States failed on Friday to agree on a settlement that would spare UBS a tax trial, and talks will continue until Wednesday, when a new status conference with U.S. Judge Alan Gold is scheduled.

U.S. lawyers familiar with the case said they expected Wednesday's conference call might still yield news of a settlement, although details could be kept secret.

"In my mind, there's no question that this case is going to be settled, there is really no other viable alternative," said attorney William Sharp, who represents U.S. clients of UBS.

"In order to preserve the integrity and effectiveness of the settlement closing, the details are likely to be kept under seal," he told Reuters.

The case has big implications not just for Switzerland, whose private banks manage around $2 trillion of foreign wealth, but for the entire offshore banking industry.

"My suspicion is that it is not good news. I'm sure there will be a resolution, but whether it will be as beneficial for UBS as the market was hoping is not looking likely," said Helvea bank analyst Peter Thorne.

Berne and Washington have said they have reached agreement on the main issues, and a settlement is expected to involve the disclosure of some names of the 52,000 U.S. clients holding secret Swiss accounts the U.S. authorities are seeking.

UBS shares have rallied in recent weeks on hopes of a deal.

U.S. shares of UBS were down 1.46 pct at $14.89 in afternoon trading on Monday.

"The settlement talks are now extending into a fifth week, underscoring its difficulties of designing a pact that could further erode Swiss banking-client secrecy," said Sarasin analyst Rainer Skierka. He said Sarasin would keep its "neutral" rating on the stock in the meantime.

"THREADING THE NEEDLE"

U.S. authorities would want to make clear in any settlement that they scored an advance against tax evasion and fraud, said Peter Hardy, a former federal prosecutor and specialist in white collar crimes at law firm Post & Schell in Philadelphia.

"I would not be surprised if somebody from the (U.S.) government made known at least some general information because they're going to want the public and the media to know that they were successful to X degree," he told Reuters.