UBS and Deutsche Bank Disclose Foreign Exchange Inquiries

UBS Is Among Banks Under Review Over Foreign Exchange

By CHAD BRAY 

The statement by UBS comes weeks after Swiss regulators said that they were investigating whether financial institutions had colluded to manipulate foreign exchange markets.

By CHAD BRAY

Steffen Schmidt/Keystone, via Associated Press Results at UBS continued to be dragged down by charges for litigation and regulatory concerns.

LONDON – The Swiss banking giant UBS said on Tuesday that it had received requests for information from regulators in Switzerland, the United States and elsewhere related to its foreign exchange business and was cooperating with those investigations.
Deutsche Bank also confirmed in its third-quarter results on Tuesday that it had received inquiries from its regulators.
UBS, Switzerland’s largest bank, said in its quarterly report that it was conducting an internal review of the business after a media report in June of “widespread irregularities in the foreign exchange markets.”

“We have taken and will take appropriate action with respect to certain personnel as a result of our review, which is ongoing,” UBS said.
Britain’s Financial Conduct Authority said this month that it had opened a formal inquiry into potential manipulation of the currency markets. The Swiss Financial Market Supervisory Authority also has said it is investigating several Swiss financial institutions in connection with possible manipulation of foreign exchange markets.
“Deutsche Bank has received requests for information from certain regulatory authorities who are investigating trading in the foreign exchange market,” the bank said. “The Bank is cooperating with those investigations, which are in early stages.”
Deutsche Bank did not provide further details, but a spokesman confirmed that the requests relate to investigations previously disclosed by British and Swiss regulators.
UBS and Deutsche Bank are among a handful of banks to publicly confirm that they have responded to regulatory inquiries as part of inquiries into the foreign exchange market, which trades more than $5 trillion daily.
This month, the Royal Bank of Scotland said it was “cooperating” in the inquiry, while Credit Suisse’s chairman, Urs Rohner, told a Swiss newspaper that the bank had received inquiries from regulators, but found no evidence of manipulation so far in its own review.
Last year, UBS agreed to pay a $1.5 billion fine to British, Swiss and American authorities to settle charges that its employees had helped manipulate the London offered interbank rate, a global benchmark interest rate known as Libor.
UBS disclosed the foreign exchange investigations on Tuesday as the bank announced that profit rose to 577 million Swiss francs ($644 million) in the third quarter. It added that its results continued to be dragged down by charges for litigation and regulatory concerns.
The bank reported a loss of 2.13 billion francs in the third quarter of 2012, after it booked billions of dollars related to its debt and the restructuring of its investment bank. The bank cut 10,000 jobs last year as part of a major overhaul designed to shift its focus from more risky trading activity in its investment bank to its wealth management arm.
The bank on Tuesday said it was taking a charge of 586 million francs in the third quarter to account for litigation and regulatory issues and expected elevated charges to continue through 2014.
UBS also said that Swiss regulators have asked it to temporarily set aside more capital to account for potential litigation and compliance charges related to operational risk.
The Swiss Financial Market Supervisory Authority, or Finma, has asked UBS to impose a temporary add-on to its measure of so-called operational risk-related, risk-weighted assets beginning in the fourth quarter, which results in an additional 28 billion Swiss francs.
UBS has yet to identify what additional capital it may have to set aside in the future in connection with the request, which came from regulators at the end of the third quarter. The designation is expected to delay its capital ratio target for 2015 by a year.
Since last year, UBS has reduced its risk-weighted assets by 80 billion Swiss francs, or 27 percent.
In addition to the charges, the bank’s quarterly results were hurt by lower client activity and trading in its wealth management business in the Americas and a seasonal slowdown in its investment bank. UBS’s results beat Wall Street expectations of 537 million francs, according to analysts surveyed by Reuters.
“Our results this quarter provide more evidence that our business model works in a variety of market conditions,” said Sergio P. Ermotti, the bank’s chief executive. “One year into the acceleration of our strategy we are ahead of plan on execution.”
UBS was one of the hardest-hit banks during the financial crisis, receiving a direct injection of 6 billion francs from the government in October 2008. The Swiss government sold its 9 percent stake in the bank for a profit of more than $1 billion nearly a year later.
In August, a fund set up as part of the bank’s bailout fully repaid a loan it received from the Swiss National Bank, paving the way for UBS to buy back a portfolio of distressed assets moved off its books as part of the rescue.
UBS said operating profit from its wealth management business declined slightly, to 555 million francs, from the second quarter, while operating profit declined 13 percent, to 202 million francs, in its wealth management Americas business.
In the investment bank, operating profit fell 68 percent, to 251 million francs, from the second quarter, while operating profit rose 7 percent, to 402 million francs, in its retail and corporate business.
The bank said its core Tier 1 capital ratio, a measure of a bank’s ability to weather financial shocks, rose to 11.9 percent by the end of the third quarter under the industry regulations known as Basel III. The core capital level had been 9.8 percent in the period a year earlier.
UBS continues to aim for a 13 percent Tier 1 ratio for 2014, but its target of a 15 percent ratio for 2015 is expected to be delayed by a year because of the litigation add-on required by Swiss regulators.
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