ZURICH (Reuters) - UBS said on Monday it will fight in court a U.S. bid to force it to disclose the names of bank clients suspected of tax evasion, which if successful could severely undermine Switzerland’s private banking industry.
A U.S. judge on Monday gave UBS until April 30 to file its response to a case launched by the U.S. Internal Revenue Service (IRS) and scheduled the trial for July 13, a UBS spokesman said.
He said UBS would “vigorously contest” the demand for client data.
“We believe we have substantial defenses to the enforcement of the summons,” the spokesman said.
UBS, the world’s largest banker to the rich, agreed last week to pay a $780 million fine and disclose the identity of about 300 of its U.S. clients to avert criminal charges that Swiss regulators said would have put its existence at risk.
However, the day after the agreement, U.S. tax authorities said they were still pursuing a civil lawsuit against UBS, seeking to access the data of another 52,000 Americans it says are hiding about $14.8 billion in assets in secret Swiss bank accounts.
UBS shares, which have already lost one-third of their value this year, fell below 10 Swiss francs for the first time on Tuesday. It touched an all-time low of 9.39 francs after news the trial would take place in July, which means a long period of uncertainty about the outcome of the U.S. tax fight.
Shares in UBS were off 1.2 percent at 9.88 francs at 1548 GMT, compared with a 0.05 percent weaker DJ Stoxx European banking index and falls of 3.07 percent for Credit Suisse and 2.17 percent for Julius Baer, two other large Swiss wealth managers.
“By admitting publicly that at some point it could raise banking secrecy, UBS has taken the risk of losing the loyalty of part of its customer base in its Wealth Management franchise,” ING analyst Alain Tchibozo said.
“We see this as an additional risk of margin compression, questioning management’s ability to restore the group’s profitability.”
The prospect of a protracted legal battle for UBS, which has made more writedowns in the crisis than any other European bank, has increased pressure on UBS Chairman Peter Kurer, with some politicians calling for him to step down.
SWISS FINANCIAL SECTOR UNDER THREAT
Experts say the U.S. investigation and last week’s settlement will dilute Switzerland’s bank secrecy laws and potentially undermine its lucrative wealth management industry.
Switzerland, the world’s biggest offshore financial center, manages nearly one-third of an estimated $7 trillion of offshore wealth.
“Without banking secrecy, Switzerland’s financial sector could shrink by up to half,” Ivan Pictet, president of the Geneva Financial Center foundation, told Le Temps newspaper.
Pictet, who is also senior managing partner of exclusive private bank Pictet & Cie, said the size of the Swiss financial industry could be cut to between 6 percent and 7 percent of the gross domestic product from 12 percent now and would hit Genevan private banks particularly hard.
Konrad Hummler, a managing partner at Switzerland’s oldest bank Wegelin and the chairman of the Swiss Private Bankers Association, said Switzerland should not capitulate in the face of U.S. and European pressure, which he described as a “large scale diversionary tactic” by cash-strapped governments.
“Politicians are in a tight corner because measures taken so far to mitigate the crisis have failed,” Hummler said in a statement. “Swiss politicians must therefore hold up a mirror to the United States and the EU to counteract this false morality.”
Wegelin said the U.S. and British governments -- which have been vocal in their criticism of Switzerland -- were keeping quiet about “financial swamps” in their own backyards, which include the Channel Islands, the Caribbean and Delaware.
In papers UBS filed last week in U.S. federal court in Miami, where the IRS has launched its suit, the bank said Swiss law prohibited it from revealing client names and it could be out of business if it complied.
Attorneys for UBS said complying with the request would be a violation of Swiss law, which makes it a criminal offense to release information protected by financial privacy laws, and would expose UBS employees to prison terms, fines, penalties and other sanctions.
Additional reporting by Martin de Sa’Pinto; editing by Jon Loades-Carter and Karen Foster
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