UBS shares experienced a decline after it was reported that the U.S. Department of Justice (DOJ) is intensifying its investigation into alleged compliance failures by UBS and Credit Suisse, which was recently acquired by UBS. The focus of the investigation is on potential violations of sanctions, particularly those related to aiding Russian clients in evading sanctions. UBS stated in its recent financial report that its sanctions programs adhere to regulations imposed by various jurisdictions, including the United States. Credit Suisse, on the other hand, has conducted a review of the allegations and is cooperating with authorities.
The DOJ probe includes scrutiny of restrictions implemented after Russia’s invasion of Ukraine in 2022 and the annexation of Crimea in 2014. The investigation is still in its early stages, and it remains uncertain whether charges or a settlement will result from it. However, the news of the investigation has negatively impacted UBS shares, leading to a temporary halt in trading. Despite this setback, UBS has built sufficient provisions to handle any potential costs associated with the case. As of June, the bank had litigation provisions of $4.7 billion, and it could set aside an additional $2.2 billion for future litigation costs. Furthermore, UBS has adjusted the valuation of Credit Suisse by $3 billion to account for contingent liabilities such as lawsuits.
Although the DOJ investigation poses a challenge to UBS, analysts believe that the bank is well-prepared to handle the situation. JP Morgan noted that UBS’s provisions and contingencies amount to nearly $10 billion, providing a buffer for potential litigation costs. The investigation is ongoing, and further developments will determine the ultimate impact on UBS and Credit Suisse.