UBS shares hit by talk of further losses, tax evasion case


Shares in Swiss banking giant UBS plunged on Monday amid talk of further losses and as investors worried that a US tax evasion case around a former employee could widen to the bank itself.

At the close, UBS shares showed a fall of 4.42 percent to 22.06 Swiss francs on the Zurich stock exchange, after a loss of 3.27 percent on Friday. The overall market was down 0.60 percent.

In a note to investors, an analyst at Credit Suisse warned that UBS’s wealth management could come under “significant pressure” if the tax evasion investigations broadens to a case directly impacting the bank.

“In a worst case scenario, UBS could lose its banking license which could have adverse effects on the global private banking franchise,” she wrote.

On Sunday, Swiss newspaper Sonntag reported that US law enforcement officials had made a formal request to come to Switzerland to investigate a tax evasion case involving UBS.

The move has been sparked by the confession of former UBS banker Bradley Birkenfeld to a Florida court last week that he conspired to help US clients dodge millions of dollars in taxes.

Swiss officials from the justice and finance ministries have already travelled to Washington for talks with their US counterparts amid concern the case could damage the overall reputation of Switzerland’s financial industry.

“In the context of legal cooperation, it is possible that foreign authorities can be present during investigations,” Justice Ministry spokesman Folco Galli told the newspaper.

Talk that the bank would further report losses for the second quarter also undermined confidence.

Sonntag also reported that the bank would make a loss of 4.0 billion Swiss francs (2.47 billion euros, 3.87 billion dollars), adding to losses of 11.535 billion Swiss francs already posted for the first quarter of the year.

Analysts at the Zuercher Kantonalbank also expect the bank to post losses of between 2.0-4.0 billion Swiss francs in the three months ending June.

A trader at the Zuercher Kantonalbank told AFP that it was a lethal mixture of the tax evasion case and talk of writedowns that led to the sharp fall today.

“The tax evasion case is very bad, and analysts are also expecting the bank to post further losses. In addition, there are rumours that clients are leaving UBS,” he said.

UBS has been hard hit by the US subprime crisis, having written down the value of assets by more than 37 billion dollars since the crisis took hold last year.

The Swiss central bank said on Thursday that it would be “increasingly involved” in assessing the ability of UBS, and another top Swiss Bank Credit Suisse also hit by the subprime crisis, to withstand the strains.

UBS is scheduled to publish its second-quarter results on August 12.

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