LUCERNE, Switzerland (Reuters) - UBS said on Thursday it has discovered a few cases of tax fraud as part of a U.S. inquiry into whether it helped wealthy Americans dodge taxes through accounts in Switzerland.
“Our investigations have uncovered a limited number of cases of tax fraud under both U.S. and Swiss law,” Chairman Peter Kurer told 2,400 shareholders gathered to vote on the bank raising 6 billion Swiss francs ($5 billion) with a convertible bond issue to the Swiss state.
Kurer, who took over in April, also said current and former top executives would give up 70 million francs in bonuses they received after coming under fire for accepting fat salaries despite steering Switzerland’s flagship bank into heavy losses.
He reiterated that UBS, one of the hardest-hit banks in the subprime turmoil, still aimed to make a profit in 2009, but stressed market conditions remained difficult. UBS made a small third-quarter profit, mainly thanks to tax gains and accounting factors, but analysts expect it to take a new hit this quarter.
UBS is also under pressure from the U.S. tax investigation launched earlier this year, which led to the indictment of the bank’s head of global wealth management this month and threatens to weaken Switzerland’s precious banking secrecy laws.
But bank-client confidentiality, a pillar of Swiss banking, “is not there to protect cases of tax fraud,” Kurer said, suggesting UBS could be ready to hand over some client details to U.S. authorities as part of a possible settlement.
The U.S. authorities are seeking the names of about 17,000 U.S. clients of UBS who have Swiss-based bank accounts. Swiss lawyers representing U.S. clients of UBS have said Switzerland is considering disclosing information on only a few hundred.
Kurer, who is trying to rebuild the bank’s reputation after it was forced to write down about $49 billion on risky subprime assets, said UBS had taken broad measures to address its shortcomings, including aggressively reducing its balance sheet and overhauling its pay structure.
The chairman said he was personally replying to the many angry shareholders who had written to express their discontent with UBS, formerly an icon of Swiss banking whose stock used to be popular among Swiss retail investors.
Under the new pay system, the chairman will not get bonuses. Ex-Chairman Marcel Ospel, whose drive into investment banking many analysts blame for UBS’s present woes, has also returned some of his pay, along with other executives.
“UBS is a leader in this regard,” Kurer said, adding he was working on getting more bonuses waived or returned.
“Those who are responsible must be brought to court,” said a 68-year-old UBS investor who lost much of his pension savings.
“I have lost nearly all what I and my wife had saved up for later years. What am I going to do now.?”
Kurer gave no details on to what extent UBS was stemming client money withdrawals, which totaled a record $49 billion in the third quarter in its core wealth management business.
UBS said earlier this month the pace of client outflows had started to ease after the Swiss government announced its rescue package. The deal also allows UBS to hive off up to $60 billion of illiquid assets in a special central bank-controlled fund.
He said the Swiss government intervention — including the 6 billion francs of new capital the shareholders approved on Thursday, “has helped bolster confidence in UBS and the Swiss banking and financial services industry as a whole.”
UBS shares, which have lost more than two thirds of their market value this year, rallied 4 percent earlier on Thursday, but later trimmed gains. They were up 2.4 percent at 15.16 Swiss francs at 8:07 a.m. EST, when the DJ Stoxx European banking sector index was up 2.5 percent.
“Kurer’s forecast that 2009 will be profitable may help. But he has also warned that the situation could get worse,” said a trader.
($1=1.199 Swiss francs)
Editing by Greg Mahlich