UBS woes mount on both sides of the pond

Amid a rotten year for UBS in investment banking, are its woes spreading to wealth management?

Last Updated: 31 Aug 2010

The beleaguered Swiss bank has seen its share price tank after losing an eye-watering $37bn on dodgy sub-prime investments – which will leave its investment banking arm deep in the mire this year. And just when it seemed that 2008 couldn’t get any worse, it looks as though its flagship business, the much-vaunted wealth management division, is also feeling the pressure. Some of its top advisers have decamped to a new rival – and now it’s facing a US government tax evasion probe. It never rains but it pours…

The US probe relates to a tax-dodging scam allegedly orchestrated by a couple of UBS’s private bankers in the US – the Department of Justice appears to think that they helped wealthy Americans squirrel their taxable income away in lots of complicated offshore trusts and funds that are largely incomprehensible to anyone outside the industry. It’s already indicted the two men involved, and according to the latest court filings, one of them, Bradley Birkenfeld, will plead guilty to various charges related to the scheme. The theory is that he’ll sing like a canary about some of the clients involved, presumably in exchange for keeping himself out of prison (he’d originally pleaded ‘not guilty’, but seemingly the threat of a stretch in San Quentin has persuaded him to change his tune).

As any good lawyer will tell you (and some bad ones, for that matter), Birkenfeld and UBS are of course entirely innocent until proven guilty, and so on and so forth. But the probe itself is another major embarrassment for the bank, in a year in which it’s had to get used to seeing its name in the papers for all the wrong reasons. And in this situation, it wouldn’t be surprising if some of its top talent started feeling a bit nervous about tarnishing their stellar CVs by hanging round to witness the carnage.

What’s more, there’s also a glamorous new rival in town. The Telegraph reports that another 19 of the bank’s senior client advisers in the UK have jumped ship to Vestra Wealth, a specialist boutique set up last year by former UBS man David Scott, with backing from Goldman Sachs. The paper reckons more than 50 staff have now left UBS for Vestra – and with other senior departures to the likes of Merrill Lynch and Credit Suisse, it sounds like there are a few empty desks in the London office of UBS’s wealth management team.

On the other hand – when you’ve just lost $37bn down the back of the sub-prime sofa and you’re facing an expensive legal battle, it probably helps to trim a few big earners off the wage bill...

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