UBS has bolstered its reserves for dealing with past scandals. The Swiss bank is bracing for a billion-dollar U.S. settlement over misspelling mortgage bonds, and has now run afoul with officials in Hong Kong over initial public offerings.
The Zurich-based bank put another 419 million Swiss francs towards its legal reserves for dealing with criminal investigators, regulators, and private lawsuits.
UBS added a fateful line to its legal disclosure in its third-quarter report, saying it could be suspended from Hong Kong for a time as the result of a regulatory investigation into how it managed IPOs.
«In October 2016, the Securities & Futures Commission of Hong Kong (SFC) informed UBS that it intends to commence action against UBS and certain UBS employees with respect to sponsorship work in those offerings,» the bank said. «Such action could also result in suspension of UBS’s ability to provide corporate finance advisory services in Hong Kong for a period of time.»
Hong Kong Suspension?
This adds to UBS' 12-page list of ongoing snafus, which includes Bernard Madoff funds, how it sold Puerto Rico bonds to clients, and a private banking probe in France.
UBS is among a handful of banks including Deutsche, Credit Suisse and Barclays to still be on the hook for how they sold residential mortgage-based securities (RMBS) to investors before the crisis hit in 2008-2009.
This brings UBS’ current legal reserves to 2.98 billion Swiss francs to settle all ongoing probes. Of that, 1.41 billion francs is planned for RMBS.
«Unsettling Effect»
UBS has signaled richer payouts after a settlement, but the timing is unclear: some officials have signaled not to expect a deal before U.S. presidential elections early next month.
While the RMBS scandal goes back nearly 10 years for UBS, the Hong Kong probe is fresh. This raises question marks over CEO Sergio Ermotti's and chairman Axel Weber's vows to lead the formerly scandal-tarnished bank into a newer, cleaner era.
UBS got off relatively lightly recently in Singapore, where it was reprimanded and fined over its dealings with illicit state fund 1MDB.
The RMBS issue continues to hang over some of Europe’s largest banks. Deutsche Chief Executive John Cryan admitted yesterday that the investigation is overshadowing his restructuring efforts.
«This had an unsettling effect. The bank is working hard on achieving a resolution of this issue as soon as possible,» Cryan said.
Highest Fine: $16.67 Billion for RMBS
For Credit Suisse, which reports the quarter on Thursday, the issue is potentially explosive: the bank may have to raise capital in order to deal with the settlement costs, Barclays analysts argue.
Deutsche’s fortunes since mid-September show how precarious nature of the probe: justice officials suggested $14 billion when beginning negotiations over the bank’s fine.
Deutsche Bank immediately and publicly pushed back, but not before its shares slid and and demand for credit default swaps – or insurance policies against the lender's default – surged.
U.S. rivals J.P. Morgan, Citigroup, Morgan Stanley, Bank of America and most recently Goldman Sachs have already settled similar probes. The highest fine levied went to Bank of America, at $16.67 billion.