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Lack of confidence UBS told to boost funds to cover legal bills

The value of UBS shares dropped 6% in response to FINMA's decision

(Keystone)

The Swiss financial regulator has ordered UBS bank to increase its capital reserves to cover an expected escalation in legal charges. Switzerland’s largest bank is currently being investigated by a number of countries for alleged malpractice.

UBS said on Tuesday that it had set aside CHF586 million ($654 million) in the third quarter of 2013 to cover potential regulatory and legal costs after being told by the Swiss Financial Market Supervisory Authority (FINMA) to temporarily increase its capital buffer by 50%.

The bank is in the process of paying off an estimated $1.5 billion legal bill to a range of regulatory authorities in connection to Libor rate rigging offences.

Earlier this year, the bank had to pay out CHF885 million to settle claims in the United States that it had mis-sold mortgage-backed securities just before the financial crisis broke.

FINMA announced an investigation earlier this month into suspected rigging of foreign exchange rates by several unnamed Swiss financial institutions.

UBS chief executive Sergio Ermotti played down the news, telling Swiss Public Radio, RTS: “It’s a temporary situation. Finma has imposed a temporary add-on. We are still the best capitalised bank in the world.”

“It confirms once again how important it is for us to be financially sound and prepared for expected as well as unexpected events,” Ermotti told Swiss public television, SRF.

UBs provided some good news in the shape of third quarter net profits of CHF577 million, compared to a CHF2.1 billion loss in the corresponding period last year. But the amount of net new money dropped to CHF5 billion, compared with a CHF10.1 billion increase a year earlier.

Tuesday’s announcement of increased legal provision cover was described by some media as a vote of mistrust in the bank, and caused shares to fall more than 6% on the news.

swissinfo.ch and agencies

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