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UBS Settles Tax Case, Poised to Hire McCann, Sheds 800+ FAs

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In early August, U.S. authorities struck a deal with UBS over the names of some 4,500 UBS clients who may have evaded taxes and a possible fine. At the same time, speculation over the future leadership of UBS’ wealth-management operations in the America continued, with former Merrill Lynch head Bob McCann moving to settle a lawsuit with Merrill-buyer BofA over the right to work for competitor UBS.

UBS had 7,939 advisors in the Americas as of June 30, 2009. This is a decline of 821 from 8,760 in the previous quarter and 616 from 8,555 a year ago.

While UBS is in the process of selling some operations that include 320 advisors in 55 branches to Stifel Nicolaus, it says the recent drop in personnel reflects, at least in part, “planned reductions of lower-producing financial advisors.”

“The departures were partially offset by recruitment consistent with the business division’s strategy to attract highly productive financial advisors, although the pace of recruitment slowed compared with the prior quarter,” UBS adds.

Stifel says the UBS acquisition should be completed in the third quarter of 2009.

“UBS is on path that’s focused on high-end clients, so it’s going to lose some low-producing advisors,” says Chip Roame of Tiburon Strategic Advisors. “And I’m still not convinced it’s going to keep all of its current operations.”

The firm has been distracted by tax issues of late. According to a UBS statement of July 31, the U.S. government told 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 expected to resolve the remaining issues soon.

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 said in an earlier statement.

Wealth management in the Americas reported net new money outflows of $5.3 billion, compared with net new money inflows of about $15 billion in the first quarter of the year.

In addition, wealth management in the Americas recorded a pre-tax loss of $205 million compared with a pre-tax loss of $32.4 million in the earlier period. The second quarter included restructuring charges of $141 million. Excluding these charges, the pre-tax loss for second quarter 2009 would have been $64 million vs. a first quarter pre-tax loss of $14.8 million.

The full company reported a net loss of about $1.3 billion in the second quarter of 2009 compared with a loss of about $1.8 billion in first quarter 2009. The company says this decrease was driven by lower losses on risk positions from businesses it has now left or is in the process of leaving.

Second quarter results were significantly affected by charges related to own credit on financial liabilities designated at fair value, restructuring charges and goodwill impairment charges related to the sale of UBS Pactual, according to UBS.

Net new money outflows were about $15 billion for UBS’ wealth management and Swiss bank operations. Net new money outflows totaled $15.8 billion for global asset management. Invested assets were $2.08 trillion at quarter-end, up from $2.02 on March 31, 2009.

Janet Levaux, MBA/MA, is the editor of and managing editor of Research magazine; reach her at [email protected].