French observers are somewhat frowning after the publication of UBS’s financial statements on Friday 15 March. Barely a month after the bank was sentenced to a record EUR 4.5 billion for illegal client acquisition on French soil and money laundering in connection with income from tax evasion, the question arises as to the level of provisions.
Many assumed that UBS would significantly increase their provisions following the earthquake in Paris. Well, on the contrary! Only USD 516 million was set aside for the ongoing legal dispute over the “carnets du lait”.
However, taking into account the billion already paid, a further USD 3.5 billion would be needed, which is more than the total of all provisions! A real Russian roulette game! But Sergio Ermotti, CEO of UBS, doesn’t seem to want to give up his legendary boldness and blessed optimism. A risky strategy which will cause a shock here in France.
On the one hand there is the aggressive reaction to an “incomprehensible” and “political” judgement that will annoy the French judges, who are eager to preserve their independence (Montesquieu’s does not joke about the separation of powers). On the other hand, UBS management is determined to play for time, to the annoyance of the French authorities. The bank has already gained time with its appeal.
In an internal memo, Sergio Ermotti recently tried to reassure his staff by explaining that the appeal process would probably take several years.
However, he omitted to point out that in the event of a new conviction in the appeal proceedings, the bank would have to pay a possible fine in order to be able to appeal against the appeal ruling to the Supreme Court at all.
What is even worse, however, is that UBS’s senior executives are obviously failing to recognize the signs of the times. According to a February 28 publication by renowned law firm Cleary Gottlieb, the appealed sum could double to a crazy EUR 9 billion. And that is by no means all. According to the same firm, the French and American authorities work closely together in international corruption and fraud cases.
David Weber, an American professor and former Inspector General of the US Securities and Exchange Commission (SEC), has recently published a high-profile article in Thehill. He strongly criticizes the agreements negotiated by UBS to avoid legal proceedings. “We must stop deeming corporations ‘too big to jail'”. That is to say: Your banking license should be revoked. After all, this license, which allows UBS to manage assets of US pension funds, is officially supervised.