UBS shares experienced a significant dip as the US Department of Justice launched an intensified investigation into alleged compliance failures that aided Russian clients in evading sanctions.
UBS, the Swiss investment bank, shares experienced a notable decline on Wednesday following reports that the US Department of Justice has intensified its investigation into alleged compliance lapses that enabled Russian clients to evade sanctions.
When approached for comment by Reuters in response to the Bloomberg News report, UBS opted to remain tight-lipped about the situation.
The report suggests that these alleged compliance failures pertain to both UBS and Credit Suisse, with the latter having been acquired by the larger UBS earlier this year.
Bloomberg reported that a comprehensive investigation by the Department of Justice, primarily focused on Credit Suisse and potential violations of sanctions, is now underway, citing sources familiar with the matter.
In its most recent financial report at the end of August, UBS stated that its sanctions programs are meticulously designed to align with sanctions from various jurisdictions, including those imposed by the United Nations, Switzerland, the European Union, the UK, and the United States.
UBS shares went down by nearly 8%
Following the report's release, trading in UBS shares was temporarily suspended, with an initial drop of nearly 8%. However, the Swiss bank's shares later rebounded slightly, ultimately trading 3.3% lower at 1500 GMT.
Bloomberg's report also mentioned that the Department of Justice had engaged with US-based lawyers representing UBS concerning Credit Suisse's alleged involvement in sanctions violations following UBS's acquisition of the smaller rival in June. One of Bloomberg's sources indicated that the investigation is still in its early stages and may not necessarily lead to charges or a settlement.
The Department of Justice's probe reportedly encompasses sanctions imposed after Russia's 2022 invasion of Ukraine and earlier restrictions implemented after the 2014 annexation of Crimea.
JP Morgan noted in a statement that the Department of Justice investigation posed a challenge for UBS but expressed confidence that the bank had set aside sufficient provisions to address potential costs arising from the case.
As of the end of June, UBS had litigation provisions totaling $4.7 billion (€4.45 billion), with the possibility of an additional $2.2 billion (€2 billion) in provisions related to potential future litigation expenses.
The Swiss bank adjusted its valuation of Credit Suisse by $3 billion (€2.84 billion) to account for outflows related to contingent liabilities such as lawsuits. JP Morgan's assessment concluded, "Overall, this is $6.8 billion (€6.43 billion) in provisions and $3 billion in contingent liabilities, i.e., nearly $10 billion (€9.46 billion) in litigation-related buffer in our forecasts."