In one of the oldest legal wrangles that UBS has been involved in, the Swiss lender this week hopes to recover some 350 million euros if a London appeals court decides to overturn an earlier verdict.

The case has pitched Switzerland’s largest bank against the city of Leipzig in Eastern Germany. The waterworks of Leipzig (KWL) in 2006 agreed to a complex transaction with UBS on a credit default swap. When the financial crisis hit, UBS was faced with a loss of 350 million euros and demanded the money back from the city of Leipzig.

In a court of first instance, the claim by UBS was rejected. The London court said that the city of Leipzig was not liable for UBS’ loss. This week, an appeals court will hear UBS arguing its case, which has featured for years as a legal risk in the UBS annual report.

Bribery

UBS will attempt to prove that its links with the brokers of the agreement weren’t as close as had been determined in the first verdict. The bank will also claim that it wasn’t responsible for the payment of bribes to the management of KWL, according to a report by «Law360» (behind paywall).

A broker in the transaction had paid bribes amounting to 3 million euros to secure the deal. The company involved was Value Partners, a firm led by former Credit (CS) bankers. At UBS, the business was under the command of a certain Steven Bracy in New York. He knew the Value Partners managers from his time at CS.

Strippers

The lawyers of the Swiss banking giant will argue that the business relations between UBS and Value Partners didn’t mean that the bank was to be held responsible for the bribery paid and that the KWL managers had accepted payments from Value Partners previously.

Bracy must have faced a massive conflict of interest. He offered gifts such as watches and World Cup tickets to his colleagues at Value Partners and also organized strippers. In exchange, Value Partners took him and a colleague of his on a luxury safari.

How Not to Bank

In a previous verdict, Bracy was judged to be dishonest and the agreement between UBS and KWL an example for how investment banking shouldn’t be conducted. Bracy left UBS in 2008.