According to a UBS statement of July 31, the U.S. Government has informed the Court in the John Doe Summons case - which concerns private client information and taxation -- that the parties have reached an agreement in principle on the major issues and expect to resolve the remaining issues in the coming week.
A status conference among the parties has been set for August 7.
In mid-July, the U.S. government and UBS, supported by the Swiss government, agreed to negotiations for the purpose of resolving the John Doe summons litigation, which is related to tax evasion and client information.
"UBS welcomes the announcement..." the company says in an earlier statement.
In June, the U.S. Justice Department said it would not drop a case seeking the names of 52,000 U.S. clients who may have used the bank to hide some $15 billion in assets from the Internal Revenue Service, but it also indicated that it was open to considering a settlement.
Tax issues have been complicating some expected changes to the U.S. wealth-management division of UBS, according to the Financial Times. The newspaper claims that some former top wirehouse executives, such as Bob McCann (previously with Merrill Lynch) and Sallie Krawcheck (earlier with Citigroup/Smith Barney) have been approached by UBS about working for its U.S. operations.
UBS has not commented on its future plans, but industry consultant Chip Roame speculates that its U.S. wealth operations have been in a bit of an awkward position when it comes to attracting top talent. "Because of the uncertainty involving UBS ---- related to the big tax case and rumors of a possible spin-off of its Paine Webber operations -- you haven't seen gainfully employed executives going there, especially those who are happy with their current roles at wirehouses now facing less uncertainty," says Roame, head of Tiburon Strategic Advisors in Northern California.
But with UBS and U.S. authorities looking somewhat likely to reach a settlement, "One mystery has been solved," Roame explains. With many former Wall Street executives available at present, "the right contract could go a long way." And the presence of a veteran broker-dealer manager, like McCann or Krawcheck, could help UBS grow its business and even better position the firm for a future spin-off.
The unit is now led by Marten Hoekstra.
"I don't see evidence that he isn't doing well," says Roame. "UBS could have other plans in mind for him and that might include promoting him or moving him back to Switzerland to manage some private-banking or other operations."
In March, UBS agreed to sell up to 55 of its U.S. branches to Stifel, Nicolaus & Company by year-end. The branches are located in 24 states and employ more than 500 people, including some 320 financial advisors with assets under management of some $15 billion.
According to UBS, this transaction will allow its U.S. wealth-management division, which includes more than 8,000 FAs, to focus its resources more effectively on high-net-worth and ultra-high-net-worth clients in core markets.
While UBS is likely to stay focused on such clients and its private-banking operations, its broader brokerage operations could be further spun-off in the near few years, Roame believes. "I'm not convinced that the Paine Webber business will be owned by UBS on a long-term basis," he says. It could sell off the bulk of the brokerage business, but keep a handful of its former Paine Webber brokerage offices in key cities, Roame adds.
In early July, a London-based research group, Scorpio Partnerships, found that Bank of America/Merrill Lynch surpassed UBS in the private-banking field in 2008, putting further pressure on the Swiss firm. (See chart above.)
A month earlier, UBS said, based upon preliminary results for April and May and estimated results for June, it expects to incur a net loss for its second quarter 2009. The majority of the expected loss is attributable to its own credit and restructuring charges that have already been announced.Still, UBS says, the operating result for the quarter, due to be announced August 4, should represent an improvement compared with the first quarter of 2009, largely because of better market conditions affecting the investment bank and a reduction in losses and write downs on legacy risk positions.