Funds News

UPDATE 3-Investors bet on settlement in UBS tax dispute

* U.S. judge wants to know if U.S. prepared to shut UBS

* Analysts see increased chance of deal before hearing

* Do not expect U.S. to close UBS down in United States

* Shares close up 2.9 percent in Europe (Adds comments from US lawmaker, industry expert)

By Lisa Jucca

ZURICH, July 9 (Reuters) - Investors bet on Thursday the United States would not go as far as shutting down UBS AG UBSN.VX there in a tax dispute, instead expecting the Swiss bank to be hit by a hefty fine as part of a swift out-of-court settlement.

UBS’s shares were higher after a U.S. judge late on Wednesday ordered the U.S. government to say if it was prepared to seize the bank’s assets in the United States, and were roughly in line with the European bank sector.

U.S. District Judge Alan Gold, set to preside over a court hearing next week in a suit seeking to force UBS to disclose 52,000 secret account holders, gave the Justice Department until noon EDT (1600 GMT) on Sunday to reply.

“This is shaping up to be a battle royal,” said Raymond Baker, director of Global Financial Integrity, a think tank that that follows illegal financial flows. “My hope is that the U.S. hangs tough.”

Analysts and traders see an increased likelihood of a deal ahead of the hearing due to start Monday, as they do not expect Washington to take the radical step of closing down UBS in the United States, thus risking potentially damaging consequences for the global financial system.

How much UBS may have to pay to end the tax dispute is unclear.

But analysts point out the Swiss bank, one of the world’s largest wealth managers, could afford up to about $5.5 billion without needing an immediate cash injection due to a recent capital increase and asset sales

“People do not expect the United States to shut down UBS. That is why the shares should end up slightly up today,” said a bank analyst who declined to be named. “There is a lot of pressure for a settlement to take place on Sunday.”

UBS employs about 27,000 people in the United States, or nearly one-third of its global workforce.

Shares in UBS ended 2.9 percent higher at 12.94 Swiss francs against a 2.4 percent rise in the DJ Stoxx European banking index .SX7P.


The U.S. case comes amid a global clampdown on Switzerland and other tax havens. G8 leaders meeting in Italy said on Wednesday they would continue to fight tax dodging, especially given the cost of stimulus measures in the crisis.

“We cannot continue to tolerate large amounts of capital hidden to evade taxation,” the G8 said in a statement.

A contingent of lawmakers in the United States have been pressing for more financial transparency of countries with strict banking secrecy laws.

“I don’t find their willingness to provide information on tax evaders in the future particularly reassuring,” said Representative Richard Neal, a Massachusetts Democrat who plans to introduce tax evasion legislation soon.

Switzerland, the world’s biggest offshore banking center, vowed in filings to the U.S. court to prevent UBS from handing over client data to Washington to defend bank secrecy laws, saying the tax case is souring diplomatic ties.

Despite strong language on both sides, analysts still see chances of a settlement.

“There is still the chance of an out-of-court settlement ahead of the scheduled hearing next Monday,” Julius Baer said in a research note.

Some analysts do not rule out a postponement of the hearing to allow the two parties to hammer out details of a deal.

Chances that UBS would get a more lenient treatment because many of its U.S. clients have already applied for voluntary tax disclosure seemed slim after Judge Gold said this week he did not believe this was an effective means to catch tax dodgers.

“I am not persuaded that reliance on voluntary disclosure or other form filings by U.S. taxpayers.... can be considered an adequate alternative means... to seek the information... in a timely and comprehensive fashion,” Gold said in a notice posted on the court’s website.

Many U.S. clients of UBS have approached the Internal Revenue Service for tax disclosure but U.S. tax authorities say they have discovered far less than the 52,000 names they are seeking.

UBS has repeatedly said speculation about potential settlement payments in the U.S. tax dispute is unfounded, though Swiss government officials have openly spoken of a possible deal.

Swiss Economy Minister Doris Leuthard told Reuters on Tuesday UBS had made mistakes and would have to pay a “price.”

Analysts say concerns that hitting UBS too hard could damage the global financial system as well as strong Swiss-U.S. diplomatic ties could help pave the way to a manageable settlement. (Additional reporting by Kim Dixon in Washington; editing by John Stonestreet, Hans Peters and Tim Dobbyn)