Shares in UBS AG rose sharply on Thursday as investors hoped the embattled Swiss bank would refocus on pressing restructuring issues after a landmark settlement of U.S. tax fraud charges.
UBS agreed to pay $780 million in Wednesday's settlement – a lower figure than some had expected – as well as identify some American clients to avert criminal charges, in move that further cracked Switzerland's trademark bank account secrecy.
It could also have wide implications for the $7 trillion-offshore banking industry by making it harder to try to circumvent tax laws.
The tax spat had been closely watched by cash-strapped western governments and could set a precedent for similar deals with other banks or by other jurisdictions.
"We highlight that any success by the US tax authority could encourage tax authorities in other jurisdictions to pursue a similar strategy," Merrill Lynch analysts said in a note.
Shares in UBS rose 4.5 percent, outperforming the Swiss blue-chip index.
Officials described the agreement as one of the biggest tax settlements ever, although smaller than recent media speculation which suggested the fine could be up to 2 billion Swiss francs ($1.71 billion).
Swiss financial regulator FINMA said UBS had to hand over a limited quantity of client data to avert criminal charges.
"Such charges could have had drastic consequences for UBS and its liquidity situation and ultimately put its existence at risk," the authority said.
Under the settlement, UBS admitted to helping U.S. taxpayers hide accounts from the U.S. Internal Revenue Service (IRS), the country's tax collection agency.
About 17,000 of 20,000 U.S. cross-border clients concealed their identities and the existence of their accounts, with $20 billion in assets, from the IRS, the Justice Department said.
The Justice Department did not say how many names of UBS clients would be filed under U.S. court seal. But Swiss newspaper, Le Temps, said in an article on Wednesday, that the data would involve about 250 clients.
After 18 months the U.S. government will recommend dismissal of charges against UBS providing it honours the terms of the agreement.
Former head of UBS AG's wealth management business, Raoul Weil, was indicted as part of the probe in November.
Weil's lawyer, Aaron Marcu, expressed disappointment that Weil's indictment was not dismissed as part of the settlement and reiterated that the executive "engaged in no misconduct".
BREAKTHROUGH HAILED
Sen. Carl Levin, the Democrat chairman of the U.S. Senate's investigations subcommittee that had pursued the fight against tax evasion welcomed the settlement as a "tremendous breakthrough."
Ralph Cole, portfolio manager at Ferguson Wellman Capital Management in Portland, Oregon, who helps invest $2.2 billion, said the settlement was a modest positive for UBS.
"It's a good thing to have this behind them," said Cole. "But I think for most people, the concern with UBS was not these regulatory issues, it was more balance sheet items."
Under orders from Swiss market regulators, UBS agreed to immediately provide the U.S. government with the identities of, and account information for, certain U.S. customers.
UBS has also agreed to a speedy exit of the business of providing banking services to United States clients with undeclared accounts.
VEIL OF SECRECY
UBS' actions helped certain U.S. clients maintain undisclosed accounts in Switzerland and other foreign countries, which in turn enabled them to avoid paying tax, the SEC alleged.
From 1999 through 2008, UBS acted as an unregistered broker-dealer and investment adviser to thousands of U.S. clients and offshore entities with U.S. citizens as beneficial owners, the SEC said.
The SEC also alleges UBS conducted business through advisers located primarily in Switzerland, who were not associated with a registered broker-dealer or investment adviser.
