UBS and Legal Challenges: A Cloud of Uncertainty

UBS and Legal Challenges: A Cloud of Uncertainty

UBS is embroiled in multiple high-stakes legal battles worldwide, primarily linked to its Wealth Management division and the takeover of Credit Suisse. These cases, spanning from historical tax evasion allegations to client disputes, significantly impact the bank’s financial exposure.

UBS published its fourth-quarter results a few weeks ago. An aspect that has drawn investor attention is the bank's provisions for litigation – particularly in the Private Wealth Management (PWM) division. These provisions are closely watched as an indicator of legal risk exposure.

According to the bank's fourth-quarter reporting, little has changed between Q3 and Q4 2024, and in fact, throughout the entire year. As of December 31, 2024, provisions for litigations in PWM stood at $1.271 billion, reflecting only minor adjustments compared to September 30, 2024. These included:

A $104 million increase due to «provisions recognized in the income statement», $17 million in reclassifications, and decreases of $14 million through «provisions used in conformity with designated purpose» and $4 million due to the release of provisions.

This relative stability in reported provisions contrasts with the significant activity in UBS' major litigation cases over the past year, raising questions about whether financial disclosures fully reflect the legal landscape the bank faces.

These are the three legal battlefields most closely watched:

1. DOJ Investigation – A Settlement That Never Was?

Last year, the US Department of Justice (DOJ) conducted a probe into Credit Suisse's adherence to its 2014 guilty plea agreement, which had initially sought to resolve the finding that the bank had previously helped US clients evade taxes.

According to this new investigation by the DOJ, Credit Suisse had failed to fulfill some terms of this agreement.

While such settlements are typically announced in clear terms, finews.com reported based on an investigative piece by the «Wall Street Journal» (WSJ) – just before the US presidential administration change – that a settlement over several hundred million of dollars was imminent. Yet, this resolution never materialized. The circumstances surrounding this are intriguing and raise more questions than answers.

Details about the anticipated settlement with the DOJ were notably absent from UBS’ Q4 report. The timing of the leak to the «Wall Street Journal», a publication that does not take such matters lightly, raises suspicions about its source. The question is: Cui bono? Who benefits from this disclosure?

There are only two plausible sources for such information: UBS itself or the DOJ. Given that the DOJ, under the Biden administration's Deputy Attorney General Lisa Monaco, was fully consumed by the transition to the new Trump administration, it seems improbable that it would have leaked such information at this point in time. This points to UBS as the likely source.

But why would UBS preemptively disclose to the «WSJ» a settlement worth several hundred million dollars if it was not yet finalized? Was this an attempt to create momentum that would push DOJ officials to formalize the deal before the administration changed hands? Or was it an internal miscalculation, assuming a resolution was closer than it actually was? These questions remain unanswered, and as of now, it is unknown whether negotiations have resumed under the Trump administration.

2. French Tax Case – The Legal Battle That Won’t End

The legal odyssey of UBS in France revolves around allegations of illicit solicitation and aggravated money laundering related to tax fraud.

In November 2023, the French Supreme Court (Court de cassation) overturned the anticipated 1 billion euro confiscation and the 800 million euros in civil damages and ordered a retrial.

This means that UBS faces a retrial at the appellate level, and a revised damages amount could still be imposed.

In a legal analysis published last year in the «Revue de droit fiscal», the authors argue that the Supreme Court's ruling significantly improves UBS' position. According to them, UBS’ decision to reject a deferred prosecution agreement (CJIP) over 1,1 billion euros in 2014 seemed to be «a serious mistake, as it had more than tripled, but after the rulings in appeal and cassation, the perception was reversed.»

3. Bulgarian Ex Clients Case – A Mixed Outcome

The legal battle concerning damages for Bidzina Ivanishvili, Georgia’s former prime minister, is still unresolved.

The original Singapore ruling in favor of Ivanishvili, which held UBS liable for over $700 million in damages was reduced by $282 in October 2024. However, this outcome has not yet been mirrored in the Bahamas, where another decision is pending. The Bahamas ruling, which partly is connected to the Singapore case, will determine UBS' overall financial liability in this long-running dispute.

Transparency Deficit

finews.com reached out to UBS for comment on these matters but was referred to general explanations contained in the bank’s financial statements. UBS has not provided additional clarity beyond those disclosures.

Despite the significant legal developments across multiple jurisdictions in recent months, UBS remains tight-lipped about the status and implications of these cases, and its reflection in the provisions. Given the materiality of these legal matters, a more forthcoming communication strategy from UBS would be welcomed by investors seeking clarity on the financial and reputational risks the bank faces.