UBS Tax-Probe Settlement Nears as U.S., Swiss Reach Agreement

UBS AG, the Swiss bank that’s set to report a third consecutive quarterly loss, may be close to resolving a U.S. tax probe that spurred defections by wealthy customers.

The U.S. and Switzerland “have reached an agreement in principle on the major issues,” U.S. Justice Department attorney Stuart Gibson said in a telephone conference call with U.S. District Judge Alan Gold yesterday. The remaining points will probably be settled in the next week, he said.

“Now they’ll be able to start rebuilding the brand,” said Teresa Nielsen, a Zurich-based analyst at Bank Vontobel who has a “hold” rating on UBS. “Once this issue is off the table, there are still others to solve.”

The U.S. sued UBS on Feb. 19, seeking names of 52,000 clients, a day after the largest Swiss bank by assets agreed to pay $780 million to defer prosecution for helping wealthy Americans evade taxes. Zurich-based UBS agreed then to an unprecedented breach of Swiss secrecy laws by giving the U.S. data on more than 250 accounts.

Judge Gold rescheduled an evidentiary hearing to Aug. 10, in case a deal isn’t reached. The IRS seeks the data because it suspects American account holders of evading taxes. Switzerland called the case a threat to its sovereignty and said it would force UBS to violate criminal laws protecting bank secrecy.

The parties declined to provide any additional information on the agreement, citing confidentiality.

Loss Estimate

UBS said on June 25 it expected a second-quarter loss. That follows $53.1 billion of writedowns since the financial crisis started in 2007, according to data compiled by Bloomberg. Analysts surveyed by Bloomberg estimate the second-quarter deficit will amount to 1.5 billion Swiss francs ($1.38 billion), compared with a 395 million-franc loss a year before.

UBS may book about 650 million francs in reorganization costs and 1.2 billion francs in own-debt charges when it publishes results on Aug. 4, the analysts estimate.

Chief Executive Officer Oswald Gruebel, who joined in February, said in a memo to employees last month that he saw “encouraging signs” in the quarter as operating earnings improved and writedowns decreased. An agreement to settle the U.S. lawsuit may bring UBS a step closer to Gruebel’s goal of halting outflows at the wealth-management unit, analysts said.

UBS rose 3.9 percent in Swiss trading yesterday after the agreement was announced. The stock is up 5.2 percent this year, compared with a 77 percent increase in Swiss competitor Credit Suisse Group AG and a 32 percent gain in the 63-company Bloomberg Europe Banks and Financial Services Index.

Possible Fine

The details of any settlement will determine its implications for UBS, analysts said. The bank may have to pay a fine of 1 billion francs, Huw van Steenis, a London-based analyst at Morgan Stanley, estimated last month.

“Paying 1 or 2 billion francs today after having written down more than $50 billion doesn’t make a big difference,” said Javier Lodeiro, a Zurich-based analyst at Bank Sal. Oppenheim with a “buy” rating on UBS. “If they have to disclose client names that probably wouldn’t be that good.” link....