UBS raises provisions for potential US fine
UBS has put more money aside in the fourth quarter to cover a potential fine related to the investigation into alleged misdemeanours in its US mortgage business. Provisions for the fine have now reached $1.5bn, up from $1.4bn at the end of 3Q16. Credit Suisse paid a fine of $2.5bn in 2016 over a similar issue, and had to compensate customers a total of $2.8bn.

The U.S. judiciary hasn’t yet closed its investigation into alleged misdemeanors in the U.S. mortgages business. UBS remains on the radar of the authorities and may yet have to pay a hefty fine. The bank has put more money aside in the fourth quarter to cover for such a payment.

Swiss banking giant UBS last year put more money aside to cover for expenses arising from legal investigations in connection with residential mortgage-backed securities in the U.S. The provisions have reached $1.5 billion at year end, compared with $1.4 billion at the end of the third quarter of 2016, according to the annual report published today.

The world’s largest asset manager in the summer of 2016 had added $417 million to its provisions, to reach the $1.4 billion at the end of September.

Huge Fine Looming Large

The investigation into the handling of the mortgage-backed securities is one of UBS' last big legal cases still to be resolved. It may yet lead to a fine reaching billion of dollars. Credit Suisse (CS), the local arch rival, reached an agreement at the end of 2016 and paid a fine of $2.5 billion. It also has had to compensate customers to the tune of $2.8 billion.

Deutsche Bank fared even worse. It was forced to pay a fine of $3.1 billion and a further $4.1 billion to customers in the U.S. Originally, the U.S. authorities wanted $14 billion from Deutsche.

Highly Lucrative – Once

The business with residential mortgage-backed securities was highly lucrative in the years preceding the financial crisis. Companies such as UBS and CS bought mortgages and repackaged them as asset-backed securities.

When U.S. mortgage takers started to default during the financial crisis, the asset-backed securities got hurt as a consequence and investors took huge losses.