Swiss Exchange Probing UBS

UBS AG (UBS - Snapshot Report) is currently being probed by the Swiss Stock Exchange over possible violation of disclosures and corporate rules. The Swiss Exchange began an investigation into possible breaches of the ad hoc publicity directive during 2007 and 2008.

The Swiss Exchange is also investigating possible violation of the corporate governance directive in connection with the company’s 2008 annual report. The inquiry will continue for an indefinite period. We note that UBS had reported substantial writedowns during the period under question.

UBS has been in the news in the recent past for all the wrong reasons. The U.S. officially started gathering account details of 4,450 UBS clients in America, who allegedly evaded taxes after Switzerland agreed to provide the relevant facts.

Switzerland recently signed an agreement to share banking information from January 2010 upon request from French tax authorities. This has resulted in large fund outflows as worried investors are eyeing a safe refuge.

Swiss banks have enjoyed large foreign deposits inflows over the years as a result of the country’s tax system, which emphasizes extreme secrecy. However, the adoption of the Organization for Economic Co-operation and Development standards for tax cooperation coupled with the US Internal Revenue Service’s lawsuit against UBS have led to dilution of secrecy.

The ongoing global economic turmoil severely hurt the Swiss banking major’s balance sheet after the subprime crisis led to record losses. In particular, the investment banking arm of UBS experienced large trading losses after significant decreases in commissions and fee income. Its asset quality is beginning to turn negative and is expected to worsen further in the coming quarters. Therefore, we expect such negative news to impact the stock in the near term.

Read the full analyst report on UBS