November 13, 2008 / 7:50 AM / 11 years ago

UPDATE 4-UBS shares drop after US indicts top banker

(Adds reference to EU savings tax plan, Nazi gold settlement)

By Lisa Jucca

ZURICH, Nov 13 (Reuters) - Shares in UBS UBSN.VX fell on Thursday after U.S. authorities charged the Swiss bank’s wealth management boss with helping Americans hide $20 billion from the taxman, putting Swiss bank secrecy laws in the spotlight again.

The indictment of board member Raoul Weil could scarcely have come at a worse time for UBS, which is trying to rebuild client confidence after unloading $60 billion of toxic assets last month in a deal with the Swiss government and central bank.

UBS shares were down 4.7 percent at 15.11 Swiss francs at 1454 GMT, underperforming a 2 percent fall in the DJ Stoxx European banks sector index .SX7P.

Analysts said UBS’s offshore business in the United States only accounted for about 2 percent of private banking assets, but the bank could ill afford further damage to its reputation.

“The direct implication on earnings is not big,” Dirk Becker, an analyst with Kepler Equities said in a research note, but added: “We are worried about the ongoing negative headlines and possible actions of other countries.”

Switzerland’s bank secrecy rules, which in darker times enabled Nazi Germany to hide assets stolen from Holocaust victims, are also facing renewed pressure from its European neighbours, especially Germany, who say the rules are being abused by dishonest clients.

EU regulators unveiled plans on Thursday to toughen up an existing agreement with Switzerland and other tax havens to prevent investors from dodging taxes. [nLD669297]

Switzerland is estimated to hold about $2 trillion or 27 percent of global offshore assets.

U.S. authorities launched their probe earlier this year into whether the world’s biggest bank to the rich helped U.S. citizens dodge taxes by hiding money in Swiss accounts. The bank was singled out by U.S. President-elect Barack Obama as one of those which helped “tax cheats”. [ID:nN12293112]

UBS’s disastrous foray into the U.S. subprime credit markets has forced the bank to make nearly $49 billion of writedowns, more than any other bank in Europe, and its stock has lost two thirds of its value since the start of 2008.

The run of bad news has scared off wealthy clients, who took out nearly $50 billion from its core wealth management division in the third quarter alone.

“The long-term future of UBS is not dependent on this legal case, nor indeed the fate of Raoul Weil, and the share price is affected by far more serious matters than this,” Helvea analyst Peter Thorne said. “But this is not good news for the shares.”

Domestic competitor Credit Suisse’s CSGN.VX shares cut earlier losses and were down 1.13 percent at 1456 GMT.

BADLY BRUISED

The U.S. indictment said Weil had been charged with concealing the assets of about 17,000 U.S. clients from the Internal Revenue Service. Other unnamed bankers are co-defendants in this case.

An attorney for Weil, who is in Switzerland, said on Wednesday he was innocent and called the charges against him “totally unjustified.”

UBS said on Wednesday Weil would be handing over his duties to his deputy Marten Hoekstra while he fights the case, adding it was continuing its efforts to cooperate with the probe.

Analysts expect the latest step to lead to a quick settlement that would most likely involve Swiss authorities.

They also noted that the bank had been able to recover from serious past blows, like the prominent $1.25 billion settlement it and Credit Suisse agreed to pay after failing to return to relatives of Holocaust victims’ wealth.

“It does not make sense to argue with the United States. If the United States can get a couple of hundred million dollars from UBS they have a template with which they can go after any other foreign bank,” said Vontobel analyst Panagiotis Spiliopoulos. “Only time will heal some of UBS’ wounds.”

UBS decided earlier this year to stop offering offshore Swiss bank accounts to U.S. citizens.

U.S. authorities did not publicly link the Weil case with that of Bradley Birkenfeld, a former UBS banker who pleaded guilty in June to helping a billionaire hide $200 million in assets from U.S. tax authorities.

Birkenfeld is cooperating with investigators.

Switzerland has so far refused to hand over details of Swiss bank accounts held in the name of UBS’s U.S. clients but is assessing the situation to see whether it can cooperate.

Under strict Swiss bank privacy laws, bank account details cannot be transferred to foreign authorities unless Berne finds evidence of clear tax fraud.

For a FACTBOX on bank secrecy protection in Europe see [ID:nLD684227]

Editing by Will Waterman and Jon Loades-Carter

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