UBS says U.S. probe widens of Puerto Rico arm, legal reserves fall
U.S. authorities have widened a probe into bond funds sold by UBS's Puerto Rico arm, the Swiss bank announced on Tuesday, alongside figures showing it has used up some of the money it set aside to cover legal costs and regulatory fines.
Zurich-based UBS's legal reserves were disclosed in a ten-page section on pending litigation in its second-quarter report, a day after financial results.
They stood at 2.37 billion Swiss francs ($2.46 billion) at the end of June, down from 2.73 billion francs the previous quarter.
The reserves fell after UBS in May became one of four major banks to plead guilty to trying to manipulate foreign exchange rates in the $5-trillion-a-day currency market, paying $545 million in combined fines.
Other risks remain, however, including claims the bank misrepresented mortgage-backed bonds during the U.S. housing bubble, a French investigation into tax dealings and wealthy clients, and back taxes due to Brazil relating to when the Swiss lender owned an investment bank in the country. UBS said it had bolstered provisions for the mortgage probe by 42 million francs to 772 million francs. The probe is seen by analysts as one of the larger litigation risks facing the bank.
Funds linked to Puerto Rico bonds are another headache, after the bank earlier this month told clients they can no longer use the securities as collateral for certain loans after the island's financial troubles resulted in downgrades by major credit rating agencies.
The bank said it was responding to inquiries from the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA) over the practice by some of its customers -- and one bank adviser -- of using loans to invest in closed-end funds in Puerto Rico.
"We also understand that the Department of Justice is conducting a criminal inquiry into the practice of certain customers and a UBS financial advisor of using non-purpose loans to invest in closed end fund securities in violation of their loan agreements and UBS policies," the bank said, disclosing this investigation for the first time.
It said it was cooperating with the investigations.
(Additional editing by Randall Mikkelsen)
Zurich-based UBS's legal reserves were disclosed in a ten-page section on pending litigation in its second-quarter report, a day after financial results.
They stood at 2.37 billion Swiss francs ($2.46 billion) at the end of June, down from 2.73 billion francs the previous quarter.
The reserves fell after UBS in May became one of four major banks to plead guilty to trying to manipulate foreign exchange rates in the $5-trillion-a-day currency market, paying $545 million in combined fines.
Other risks remain, however, including claims the bank misrepresented mortgage-backed bonds during the U.S. housing bubble, a French investigation into tax dealings and wealthy clients, and back taxes due to Brazil relating to when the Swiss lender owned an investment bank in the country. UBS said it had bolstered provisions for the mortgage probe by 42 million francs to 772 million francs. The probe is seen by analysts as one of the larger litigation risks facing the bank.
Funds linked to Puerto Rico bonds are another headache, after the bank earlier this month told clients they can no longer use the securities as collateral for certain loans after the island's financial troubles resulted in downgrades by major credit rating agencies.
The bank said it was responding to inquiries from the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA) over the practice by some of its customers -- and one bank adviser -- of using loans to invest in closed-end funds in Puerto Rico.
"We also understand that the Department of Justice is conducting a criminal inquiry into the practice of certain customers and a UBS financial advisor of using non-purpose loans to invest in closed end fund securities in violation of their loan agreements and UBS policies," the bank said, disclosing this investigation for the first time.
It said it was cooperating with the investigations.
(Additional editing by Randall Mikkelsen)
- Katarina Bart is a correspondent at Reuters in Zurich