UBS not getting out of Headlines

The FSA raid on which I wrote a few days ago now is said to implicate UBS workers as well. As writes Bloomberg:

As many as 11 people may be charged next week over an insider-trading ring that began at the London printers for UBS AG and JPMorgan Chase & Co.’s Cazenove unit, four people with direct knowledge of the case said.

The Financial Services Authority is preparing to file criminal charges after a two-year investigation, the people said on condition of anonymity because the defendants haven’t been formally accused of a crime. The FSA says that the north-west London operation, involving accountants and spread-betters, used leaked data from deal prospectuses being printed for the banks, according to the people.

That is not all. In another Bloomberg article we learn:

JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and UBS AG were among more than a dozen Wall Street firms involved in a conspiracy to pay below-market interest rates to U.S. state and local governments on investments, according to documents filed in a U.S. Justice Department criminal antitrust case.

A government list of previously unidentified “co- conspirators” contains more than two dozen bankers at firms also including Bank of America Corp., Bear Stearns Cos., Societe Generale, two of General Electric Co.’s financial businesses and Salomon Smith Barney, the former unit of Citigroup Inc., according to documents filed in U.S. District Court in Manhattan on March 24. The papers were filed by attorneys for a former employee of CDR Financial Products Inc., an advisory firm indicted in October. The attorneys, as part of their legal filing, identified the roster as being provided by the government. The document is labeled “list of co-conspirators.”

I guess, nothing to worry about for UBS. They will ‘cooperate fully with authorities’ and obviously have ‘done nothing wrong’ and if something was done it was ‘a rogue employee’. Of course.


Lehman eyed UBS for Merger

From the Lehman report (Volume 8 – Appendices 8-22):

As early as 2006 or 2007, Fuld met with Marcel Ospel, Chairman of the Board of
UBS, to discuss a potential merger. Fuld suggested that Lehman merge with
Warburg, UBS’s investment banking unit, and that UBS finance the merger, and
Lehman run the combined firm. Fuld and Ospel met in Switzerland and New York
City in connection with that potential deal. Fuld thought that a possible Lehman
merger with UBS remained a real possibility. In February 2008, Lehman drafted an
analysis regarding a merger with UBS. That analysis noted that UBS took
significantly larger than expected write‐downs in the fourth quarter of 2007, and that
UBS also disclosed significant exposure to high risk assets.294 However, on April 2,
2008, Ospel was replaced as Chairman of UBS because of its large subprime losses, and
subsequently the deal faded away. Over the course of April and May 2008, there
were passing references to potential transactions with UBS by Jeremy M. Isaacs, CEO of
LBIE, Jeffrey L. Weiss, Co‐Head of Global Finance, and David Goldfarb, Lehman’s
Global Head of Strategic Partnerships, in e‐mails to Fuld, but there were no serious
discussions with UBS at that time.

Seems like Mr. Ospel was replaced just in time. I am sure that’s not the end of the story here.

It get’s better still. According to the Financial Times, it seems that Barclays eyed UBS as potential takeover candidate as well.

Hat tip: Tages Anzeiger

Turkey to Seek Information From Switzerland

The Turkish government is preparing to request information about Swiss bank accounts held by Turks. It seems Turkey has analyzed the agreement between the US and UBS and concluded that this constitutes a precedent Turkey can take advantage of to request information about bank accounts of its nationals. It is believed that in excess of $60 billion might be on Swiss bank accounts.

However, this might be running into difficulties as there is currently no information exchange agreement between the Switzerland and Turkey.

If I am not mistaken than the convention has been signed by both countries but is currently pending approval (French) in the Swiss Parliament. The text can be found here (French, German both pdf)

[Source: Hürriyet]


Three Law Professors Speak Out Against the UBS Deal

In a letter to IRS Commissioner Doug Shulman three law professors from American University’s law school have expressed their concern about the deal in the following words (hat tip and a reader, emphasis mine):

August 19, 2009Hon. Douglas Shulman
Commissioner, Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224

Dear Commissioner Shulman:

We have been following the news reports of the IRS’ very commendable efforts to challenge US tax evasion protectively cloaked by Swiss bank secrecy laws. The latest US-Swiss declaration of August 19, 2009 represents the fruit of those efforts and will result in the IRS receiving information about several thousand US taxpayers with Swiss accounts. The agreement provides that UBS will first notify account holders that their names are to be shared with IRS and to afford those account holders a chance to dispute the disclosure under Swiss law.

We have also watched with interest the IRS’ efforts to promote voluntary disclosure by US taxpayers prior to IRS’ commencement of examination. With the lure of amnesty in the form of no criminal action and reduced civil penalties, the IRS hopes taxpayers will come forward “voluntarily.” This general concept is equally laudable. However, the IRS’ promise to keep open the September 23 amnesty deadline for taxpayers who come forward even after they receive notice from UBS that their names are about to be revealed is the point at which we depart company with IRS policy.

It seems that when a taxpayer is told he is about to be “given up”, the leniency of the amnesty is no longer warranted. The self-identification is no longer “voluntary.” Ordinarily, a taxpayer who accepts an amnesty offer gives up the chance, however slim, of being overlooked; the government is spared the effort to ferret him or her out; and the reward of lesser sanctions has some cogency. Here, though, the taxpayer is specifically identified, forgoes no chance of staying under the radar, and spares the government nothing. Admittedly, the window of time for all of this is short, but the principle of amnesty for less-than-really-voluntary disclosure seems unduly generous.

Our law school operates a low income taxpayer clinic. In the last few years, we have seen an increase in the assertion of penalties against the poorest, least sophisticated taxpayers with virtually negligible room for negotiation by the IRS. It would seem that a blanket program of offering reduced penalties and no criminal action to wealthy, sophisticated tax dodgers who come forward on the eve of their names being turned over to the IRS and with prior knowledge of the forthcoming disclosure, is suggestive of something less than even handed tax administration.

Very Truly Yours,

Nancy S. Abramowitz
Andrew Pike
Robin Westbrook
Profs., Washington College of Law
American University

I can only agree with that. It is not long ago the Supreme Court of the United States wrote in Boumedienne v. Bush (emphasis mine):

(iii) The Government’s sovereignty-based test raises troubling separation-of-powers concerns, which are illustrated by Guantanamo’s political history. Although the United States has maintained complete and uninterrupted control of Guantanamo for over 100 years, the Government’s view is that the Constitution has no effect there, at least as to noncitizens, because the United States disclaimed formal sovereignty in its 1903 lease with Cuba. The Nation’s basic charter cannot be contracted away like this. The Constitution grants Congress and the President the power to acquire, dispose of, and govern territory, not the power to decide when and where its terms apply. To hold that the political branches may switch the Constitution on or off at will would lead to a regime in which they, not this Court, say “what the law is.” Marbury v. Madison, 1 Cranch 137, 177. These concerns have particular bearing upon the Suspension Clause question here, for the habeas writ is itself an indispensable mechanism for monitoring the separation of powers. Pp. 34–36.

The same problem does exist here as well.  How can the protections granted in the Constitution just be turned on and off at will by the governement purporting that there is an international issue (or a conflict of two jurisdictions in this case) that required an international contract which does away with the rights granted in the Constitutions? Methinks it cannot be at all!

Gentlemen, the nation’s basic charter cannot be contracted away like this. Me shudders if this should become the norm.


Swiss Government Sells its Stake in UBS for a Profit of 1.2 bln CHF

The Swiss government is selling its 332.2 mln shares at a price of CHF 16.50 per share, i.e.  5,4813 CHF. In addition UBS agreed to pay the Swiss government CHF 1.8 bln to redeem revnue lost by the Swiss government due to the conversion of the convetible bond to shares.
The revenue for the Swiss government amounts thus to CHF 7.2813 bln for an investment of CHF 6 bln. This is a return on ivestement of some 25% over 8 month.
The effective date of the deal will be August 25, 2009.

This is good news for Switzerland. Not only did it get rid of any involvement with UBS, it did so at no cost to the taxpayer – if you disregard other stuff such as reputational damage, etc.
Now if the share prices of UBS tanks and UBS needs another capital infusion, the reply should be ‘NO, seek funds elsewhere’.

The timing here is espcecially important. Especially when reading the UBS press release concerning the law suit with the IRS one cannot help but think that there will be issues that could well lead to a drop in share prices.

The US government will withdraw the John Doe summons with prejudice as to all accounts not covered by the treaty request no later than 31 December 2009, provided that UBS has complied with those obligations that are required to be performed by that date.

When contrasted to  the IRS interpretation:

Also, the agreement retains the U.S. Government’s right, if the results are significantly lower than expected and other measures fail, to seek appropriate judicial remedies, including resuming actions to enforce the John Doe summons.

So there might be some differences in interpretation here. One might conclude that the story is far from being finished.

The Swiss government’s sale of share may also prove to be a good move when the economy and with it the share prices that are currently artificially inflated tank.
In fact, this looks to me like a nice pump-and-dump by the Swiss government.


Looks Like a Fad – IRS v. UBS II

Today it was announced by the Swiss government and the IRS that the deal regarding the information about accounts of supposed U.S. tax-evaders had been signed.

From the IRS press release:

R-2009-75, Aug. 19, 2009WASHINGTON — The Internal Revenue Service and the Department of Justice today announced the successful negotiation of an agreement that will result in the IRS receiving an unprecedented amount of information on United States holders of accounts at the Swiss bank UBS.As a result of this agreement, the IRS will receive substantially all of the accounts that it was interested in when it initiated the John Doe summons against UBS.

That sounds like a sucess, doesn’t it. But wait, here is the Swiss governement’s take on it from Neue Zürcher Zeitung (NZZ) (translation mine):

According to the Swiss Minsister of Justice, Evelyne Widmer-Schlumpf, the IRS will as a next step file a new request for legal assistance with the Swiss government  for the release of 4450 customer files. The Swiss government had agreed to put in some additional effort to provide the assistance and bring the matter to a close within a year. The right of the clients to judicial review remains in place.

Now, the Swiss government expects in reality 4450 requests for legal assistance, one for each customer. It is according to Widmer-Schlumpf a very ambitious goal for the Swiss government to handle that many requests within a year and the government might well fail to meet the deadline.
[Note: It seems the Swiss government will hire external resources from PwC – why, oh why PwC? They already audit the SNB].
In addition, the Swiss Federal Administrative Court which will handle any legal challenges should a customer decide to challenge the government’s decision to release his files might block the release of any data, according to the Justice Minister. [Hhm, well. Knowing the Swiss courts as part of the executive and tightly linked to it, I expect no major roadblock there].

There is considerable room for friction here. Especially since the IRS seems to expect up to 10,000 customer files. To me this looks like an anti-climactical event that doesn’t justify all the fuss that has been made. In fact, they are back to square one and I wouldn’t be surprised if any new obstacles would pop up.

The agreement itself (see below) may also be open to legal challenges by any agrieved party with legal standing (30 days, starting tomorrow).


UBS Hires Merrill Lynch and Goldman Sachs Bankers

UBS is ramping up its Investment Banking unit with new hires from Morgan Stanley and Goldman Sachs. Writes Bloomberg:

The hires include Dimitri Psyllidis, formerly at Merrill, who joined Zurich-based UBS to head foreign exchange and rates trading globally, according to a memo sent to staff yesterday. He will report to Carsten Kengeter and Jeffrey Mayer. Bobby Gerjarusak joined in Hong Kong from Goldman Sachs to run fixed- income, currency and commodities structuring in Asia-Pacific.

How convenient and timely.
We learn just today, that the DoJ and UBS/CH have reached a deal ready to be signed. However, so far not much is known (to us mere mortals) about the actual contents of the deal.

According to other sources the hiring market for Quants has also thawed. It seems that banks believe that another round of this bullshit is coming and they want to be in a position to profit from it (it being even more fraudulent securitization).

I’ll just lean back, get some popcorn and watch the coming train wreck 2.0 from afar. It will be an even bigger mess, that’s certain.

Good luck.