It was actually pretty quiet recently at UBS, the number one in the Swiss financial center. Hardly any scandals, mostly good news. For the third quarter of 2021, for example, UBS was able to present excellent figures.
The ruling, which a Paris court pronounced on Monday afternoon, is a kind of reminder that things were not always so calm and scandal-free at Zürcher Bank: the Paris appeals court has imposed a fine on UBS for illegal customer recruitment and serious money laundering in the event of tax evasion convicted of 1.8 billion euros. This consists of a fine of one billion euros and damages of 800 million euros. The court thus confirmed the judgment of the first instance in principle, but reduced the amount of the fine significantly.
In February 2019, the bank was sentenced in the first instance to a record fine of 3.7 billion euros and 800 million euros in damages to the French state. The money house, which had previously been conspicuously confident of victory, then appealed. In the newly opened proceedings before the Paris Cour d’Appel, the public prosecutor’s office lowered its claim to a fine of two billion euros and a billion in damages because a new leading ruling by the Paris Court of Cassation was in place: According to this, the amount of fines should not be based on the untaxed sums of money, but on the evaded taxes. The judges have now remained well below this requirement.
The proceedings concerned alleged business practices of UBS and UBS France between 2004 and 2012. The investigators accused the bank of having sent Swiss employees to France to recruit wealthy French customers on the fringes of exclusive hunting trips or golf tournaments. These should then secretly, bypassing the French tax authorities, open accounts in Switzerland. No less than ten billion euros are said to have flowed from France into Swiss accounts in this way. The French subsidiary of UBS and six former employees were also accused in the proceedings.
The verdict announced on Monday is unlikely to be the last on this matter. It is still possible to call the Court of Cassation, which would not reopen the case, but only decide on possible procedural errors.
But even if the last word has not yet been spoken, the current judge’s verdict is also a slap in the face for UBS management. Because this process was not just about the old conflict between Swiss banking secrecy and the tax law of an EU country, in this case France. It is also about how severely banking crime is punished in Europe these days: 4.5 billion euros in the first instance, these are dimensions that were previously only known from the USA. In Europe, the penalties are generally lower: in 2013, the EU Commission fined several banks a total of 1.7 billion euros for their cartel for manipulating Libor interest rates. UBS has now slipped into this order of magnitude. In Germany, however, fines often do not even reach the million mark: The previous record in Germany and with a view to the financial sector was once 40 million euros, with which the financial supervisory authority Bafin punished Deutsche Bank for late money laundering reports.
Incidentally, UBS only put aside 450 million euros for the Paris trial. If she accepts the verdict, it will cloud her recent good business figures – and the comparison with Credit Suisse, Switzerland’s most important competitor, is likely to be less clearly in favor of UBS. On the stock market, however, the verdict was well received, one had expected worse, the share turned positive after the announcement.
Under Axel Weber, UBS shares rose by 50 percent
Most recently, the roles at Zurich’s Paradeplatz were clearly assigned: calm waters at UBS, scandal after scandal at Credit Suisse. The latter, for example, had several of its managers shadowed in recent years and received a sharp reprimand from the Swiss financial market supervisory authority for this. Then there was the Greensill bankruptcy at the beginning of the year and the debacle surrounding the Archegos hedge fund. No bank made more losses at Archegos than Credit Suisse: around five billion francs.
In contrast, things went remarkably well at UBS. When Chairman of the Board of Directors Axel Weber hands over his office to the former Morgan Stanley banker Colm Kelleher in April 2022, his balance sheet will probably be quite passable – at least if you look at the share price: the price has increased by a good 50 percent since starting in 2012 to, while the shares of Deutsche Bank, for whose leadership the former Bundesbank president was also in discussion at the time, lost almost 70 percent.
Together with the former CEO Sergio Ermotti, Weber had downsized investment banking, especially bond trading, while Deutsche Bank continued to grow in this area despite ever stricter regulations. Certainly, UBS had an advantage because it received state aid during the financial crisis, and of course it benefits from the fact that wealthy people bring their money to the tax haven Switzerland – but it was also business policy decisions that led UBS to participate in the Today the stock exchange is worth almost twice as much as Deutsche Bank.
Obviously, UBS has done a lot right since the financial crisis. The process in Paris, as you can see in Switzerland, is now supposed to bring the past to an end, so that you can then get started with the new group manager Ralph Hamers. However, and this is probably one of Axel Weber’s biggest mistakes, Hamers, who was selected by Weber, also has legacies in his luggage: In the Netherlands, investigations are underway against him because, as head of the local bank ING, he is said to have not taken sufficient action against money laundering.