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UBS Group to Face $93M Penalty for German Tax Evasion Case

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UBS Group’s (UBS - Free Report) German unit is likely to face a fine of about €83 million ($93 million) for allegedly helping clients evade taxes in the period between 2001 and 2012. The prosecutors have forwarded request for fine in a local court in Mannheim.

The prosecutors are of the opinion that managers of the Swiss bank, with support from executives at the Swiss parent,were involved in wrongdoings by showing cross-border bank transfers as if they were made within Germany.

Investigations on the matter were being conducted since 2012, and during the period prosecutors have raided offices and homes of bank employees, per a Bloomberg’s article.

In a recent release, prosecutors said that they have strong evidence against UBS and that it was sufficient to fine the bank for wrongdoing by its executives. However, the firm has chosen to fight these allegations.

UBS said, "The prosecutor's office in Mannheim has been investigating the alleged conduct from before 2012 for six years. We do not believe the prosecutor's claim is supported by the facts or the law and we intend to vigorously oppose this administrative proceeding."

In another major legal setback, UBS’ French unit was found guilty of similar charges. The court penalized the bank €4.5 billion ($5.1 billion), including civil damages of €800 million.

In this case too, UBS persistently denied any criminal wrongdoing throughout the investigation and during the trial, and therefore, has contested the verdict and plans to appeal.

Our Take

Heightened investigations and lawsuits surrounding tax evasions reflect efforts of the regulators and the government to bring transparency and stability in the trading industry and thereby, safeguard investors’ interests.

Though, UBS undertakes cost cutting measures, which will aid bottom-line growth, persistent negative interest rate environment in the domestic economy and constant legal hassles pose as headwinds.

In three months’ time, UBS has lost 3.7% on the NYSE against 1.1% growth recorded by the industry.

The company currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the same space are The Bank of N.T. Butterfield & Son Limited (NTB - Free Report) , ICICI Bank Limited (IBN - Free Report) and Banco Latinoamericano de Comercio Exterior, S.A. (BLX - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Bank of N.T. Butterfield has been raised 7.4% for the current year in the past 30 days. The company’s share price has jumped 11.7% in the past three months.

ICICI Bank’s earnings estimates for 2019 have remained stable in the past 30 days. Its share price has risen 12.7% in the past three months.

Banco Latinoamericano’s shares have gained 13.9% in three months’ time. Its earnings estimates for 2019 have moved up 3.4% in the past 60 days.

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