Swiss banking giant UBS on Tuesday posted a net profit of 4.2 billion francs ($4.57 billion) for 2011, down 44 percent on the previous year, and forecast a tough first quarter due to the
economic crisis.

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Swiss banking giant UBS on Tuesday posted a net profit of 4.2 billion francs ($4.57 billion) for 2011, down 44 percent on the previous year, and forecast a tough first quarter due to the
economic crisis.

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Investment arm pushes down UBS profits

Swiss banking giant UBS on Tuesday posted a net profit of 4.2 billion francs ($4.57 billion) for 2011, down 44 percent on the previous year, and forecast a tough first quarter due to the
economic crisis.

Published: 7 February 2012 09:54 CET

Investment arm pushes down UBS profits

Martin Abegglen (File)

From October to December, net profit reached 393 million francs, compared to 1.7 billion francs in the same period in 2010.

This fell short of the expectations of analysts who had predicted a profit closer to 600 million francs, according to the AWP financial news agency.

Almost all the bank’s divisions posted an improvement on the third quarter, with the exception of its investment bank, which took a loss before tax of 256 million francs. A year ago it had posted a profit of 100 million francs.

In its outlook for 2012, UBS, Switzerland’s largest bank, said concerns surrounding eurozone sovereign debt, the European banking system and US federal budget deficit issues would likely have a negative effect on client activity in the first quarter.

“Traditional improvements in first quarter activity levels and trading volumes may fail to materialize fully, which would weigh on overall results for the coming quarter, most notably in the investment bank,” UBS said in a statement.

The bank said it believed its asset-gathering businesses as a whole would continue to attract net new money, however.

“We are confident that the coming quarters will present additional opportunities for us to strengthen our position as one of the best capitalized banks in the world, and we will continue to focus on reducing our Basel III risk-weighted assets and building our capital ratios.

“We continue to have the utmost confidence in our firm’s future.”

In November UBS announced dramatic cuts to its investment bank, reducing its risk-weighted assets by half or 145 billion francs.

The investment arm was hit by colossal losses during the US subprime loan crisis and has struggled to rebuild itself.

That month also saw Sergio Ermotti take over as chief executive from Oswald Grübel in the wake of an investigation into a massive rogue trading scandal.

Former UBS trader Kweku Adoboli, 31, pleaded not guilty in a London court last month to losing $2.25 billion in fraudulent trades. A trial date has been set for September.

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Switzerland's UBS faces €3.7-billion fine as crucial court ruling looms

UBS denies charges it helped French clients evade tax and says it will defend itself "vigorously". Photo: AFP

The trial opened last autumn after seven years of investigations, launched when several former employees came forward with claims of unlawful conduct.

The move came as authorities across Europe cracked down on tax evasion and dubious banking practices in the wake of the global financial crisis which erupted in 2007.

The pressure eventually forced Switzerland to effectively end its tradition of ironclad bank secrecy, by joining more than 90 countries which agreed to automatically share more client account information among each other.

In the UBS case, French authorities determined that more than €10 billion had been kept from the eyes of tax officials between 2004 and 2012.

The National Financial Prosecutor's office urged a €3.7-billion ($4.2 billion) fine, the largest ever sought in France, saying the bank and its directors “were perfectly aware that they were breaking French law” by unlawfully soliciting clients and helping them evade French taxes.

They also sought a €15 million fine for UBS's French subsidiary, and fines of up to €500,000 for six top executives, including Raoul Weil, the former third-in-command at UBS, and Patrick de Fayet, formerly the second-ranking executive for its French operations.

In addition, lawyers for the French state, which is a plaintiff in the case, asked for €1.6 billion in damages.

UBS, which was ordered to post €1.1 billion in bail, has denied the charges and said its operations complied with Swiss law.

It also says that it was “unaware” that some French clients had failed to declare assets in Switzerland, and that prosecutors have not produced any proof, such as client names or account numbers, to back up their fraud claims.

The case is being closely watched by industry executives at a time when Paris and other European capitals are hoping to lure multinational banks from London as Brexit looms.

'Milk tickets'

UBS is accused of organising or inviting prospective clients to prestigious outings such as the French Open or luxury hunting retreats, where UBS's Swiss bankers would meet their “prospects” — something they were not allowed to do under French law.

UBS France directors then used notes called “milk tickets” to keep track of how many “milk cans” – amounts of money – were transferred to Swiss accounts.

They say the system was merely a way to balance out bonuses due to French bankers who were effectively losing a client to their Swiss peers, and the notes were later destroyed.

But investigators claim the “milk tickets” were proof that UBS had a parallel accounting system for keeping the transfers off its official books.

Only one “milk ticket” was found during the inquiry, prompting defence lawyers to argue there was no proof to justify claims of a massive fraud.

Yet prosecutors pointed to the roughly 3,700 French UBS clients who later took advantage of an amnesty offer to regularise their tax declarations with the French authorities.

UBS has been embroiled in a series of similar cases, most notably in the United States, where the authorities said the bank used Switzerland's banking secrecy laws to help rich clients avoid taxes.

In 2009 it paid $780 million to settle charges it helped thousands of American citizens hide money from the Internal Revenue Service, and agreed to turn over information on hundreds of clients, severely denting Switzerland's long tradition of shielding banking clients and their operations from prying eyes.

That case was also prompted by a former American UBS employee turned whistleblower, Bradley Birkenfeld, whose book “Lucifer's Banker: The Untold Story of How I Destroyed Swiss Bank Secrecy” was published in 2016.

Last November UBS was again sued by US authorities, who accuse the bank of misleading investors over the sale of mortgage-backed securities in 2006 and 2007, just before the financial crisis struck.

UBS has denied the charges and said it will defend itself “vigorously”.

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