UBS AG shares fell to a new all-time low on Tuesday after news the Swiss bank will have to wait until July to fight in court a U.S. bid to force it to disclose client names in a tax fraud probe.
UBS, the world's largest banker to the rich, agreed last week to pay a $780 million fine and disclose the identity of about 300 of its U.S. clients to avert criminal charges, raising hopes the troubled bank could end its U.S. legal problems.
But the following day, U.S. tax authorities said they were still pursuing a civil lawsuit against UBS seeking to access the data of another 52,000 American citizens it says are hiding about $14.8 billion in assets in secret Swiss bank accounts.
On Monday, a U.S. judge gave the bank until April 30 to file its response to the case and scheduled a trial for July 13, a UBS spokesman said, adding UBS would vigorously contest the enforcement of the summons for the client data.
We believe we have substantial defenses to the enforcement of the summons, the spokesman said.
UBS shares, which have already lost a third of their value this year, fell through the psychologically important level of 10 Swiss francs for the first time to touch a new all-time low of 9.39 francs.
They were off 5.8 percent at 9.44 francs at 1014 GMT (5:14 a.m. EST), compared with a 2.8 percent weaker DJ Stoxx European banking index <.SX7P> and falls of more than 6 percent for other big Swiss banks, Credit Suisse
By admitting publicly that at some point it could raise banking secrecy, UBS has taken the risk of losing the loyalty of part of its customer base in its Wealth Management franchise, ING analyst Alain Tchibozo said.
We see this as an additional risk of margin compression, questioning management's ability to restore the group's profitability, Tchibozo said.
The prospect of a protracted legal battle for UBS, which has made more writedowns in the crisis than any other European bank, has increased pressure on UBS Chairman Peter Kurer, with some politicians calling for him to step down.
SWISS FINANCIAL SECTOR UNDER THREAT
Experts say the U.S. investigation and last week's settlement will dilute Switzerland's bank secrecy laws and potentially undermine its lucrative wealth management industry. Switzerland, the world's biggest offshore center, manages nearly one-third of an estimated $7 trillion of offshore wealth.
Without banking secrecy, Switzerland's financial sector could shrink by up to half, Ivan Pictet, president of the Geneva Financial Center foundation, told newspaper Le Temps.
Pictet, who is also senior managing partner of the exclusive private bank Pictet & Cie, said the size of the Swiss financial industry could be cut to 6-7 percent of gross domestic product from 12 percent now, hitting Geneva private banks particularly hard.
In papers UBS filed last week in the federal court in Miami handling the suit launched by the U.S. Internal Revenue Service, the bank said Swiss law prohibited it from revealing client names and it could go out of business if it complied.
Attorneys for UBS said complying would mean violating Swiss criminal law by turning over information protected by Swiss financial privacy laws, exposing UBS employees to prison terms, fines, penalties and other sanctions.
(Additional reporting by Martin de Sa'Pinto, Editing by Mike Nesbit and Jon Loades-Carter)