The global pandemic is about to prolong the Swiss bank's more than nine-year legal travails in France.
Sergio Ermotti had hoped to bring it to bring the Swiss bank's appeal in a key French criminal trial for its private bank to an end in his tenure. The Swiss banker ends his nine-year tenure at UBS in November, when he hands over to Dutchman Ralph Hamers.
The idea was to leave UBS unfettered of past problems – but that won't happen: the French judiciary is pushing the June trial back, according to «Bloomberg». French court officials will set a new date for the appeal of a $5 billion fine later this year.
Spur Digitization
The delay is disastrous for UBS, which had been desperate to appeal the 2019 decision which cost it a key shareholder backing last year. For Hamers, it represents an unwanted and likely unfamiliar distraction from his primary job, which is to whip UBS into fighting digital shape.
The bank had beefed up its defense team, including with luminaries like German ex-finance minister Theo Waigel, and honed its argumentation from 2018's trial. The June date had effectively represented a chance for Ermotti and UBS' chief lawyer, Markus Diethelm, to retry the case.
Appeal «Win» is Relative
The exit of Ermotti and entrance of Hamers changes the dynamics for UBS. The new CEO, who wants to start on his modernization mandate with a clean slate, likely has a higher threshold for pain from France than Ermotti, Diethlem, and UBS Chairman Axel Weber.
UBS' hopes for the retrial are decidedly modest: the bank doesn't necessarily hope to wipe out all the accusations in court. It aims for what one observer called a «German-sized» punishment, rather than a more draconian «French-sized» one – referring to settlements between German states and Swiss banks which typically run in the hundreds of millions, and not in the billions.
Corona Threatens Profits
What it the court upholds the hefty fine after hearing UBS' appeal? The bank flagged an $1.5 billion quarterly profit two weeks ago – but it also needs to brace for the crisis. A fine of more than 10 percent of UBS' hardest capital component ($35.6 billion) is likely to imperil the second leg of its 2019 dividend.
UBS, which reports the first quarter on Tuesday, will have benefited from trading in the first three months. So did crosstown rival, which reported the quarter last week – while taking more than $1 billion in the sort of valuation mark-downs and provisions against credit losses which also look for UBS.
Bad Omen
The pending appeal comes against the backdrop of the pandemic-sparked economic crisis, with higher volatility and more credit risks. A defeat in Francs would be damaging for Credit Suisse as well, a finews.com reported last year.
As with a series of settlements with U.S. prosecutors, UBS in France is likely to set precedent for other Swiss banks. In 2009, UBS paid $780 million to settle with American prosecutors. By the time it was Credit Suisse's turn five years later, the price had risen to $2.5 billion.
