Following news that the U.S. Department of Justice has intensified its investigation into potential compliance lapses that enabled Russian clients to circumvent sanctions, UBS shares slumped on Wednesday.
When contacted by Reuters about the Bloomberg News report alleging that UBS and Credit Suisse, which was acquired by its larger rival UBS (UBSG.S) earlier this year, were responsible for the purported compliance lapses, UBS declined to comment.
According to the Bloomberg article, which included the statements of persons with knowledge of the situation, the Department of Justice has begun a comprehensive investigation that is primarily focused on Credit Suisse and possible violations of sanctions.
The Justice Department declined to comment.
The United Nations, Switzerland, the European Union, the United Kingdom, and the United States are just a few of the countries that have imposed sanctions. UBS stated in its most recent financial report at the end of August that their sanctions programmes are created to comply with sanctions across several jurisdictions.
The report from Switzerland’s largest bank also stated, without going into further detail, that law enforcement officers have visited Credit Suisse branches in Belgium, the Netherlands, France, and Britain as part of an inquiry into cross-border banking for wealthy clients.
The UK and French elements of Credit Suisse’s investigation of these problems have been closed, and the company is still working with the authorities, according to UBS.
After falling by about 8% as a result of the article, trading in UBS shares was momentarily suspended. Later, the shares of the Swiss bank recovered and fell 3.3% at 1500 GMT.
According to the report, which relied on persons with knowledge of the situation, the DOJ had discussions with UBS’ American lawyers concerning Credit Suisse’s alleged exposure to sanctions violations ever since UBS acquired its smaller rival in June.
One of the sources quoted by the article claimed that the DOJ is also looking into potential compliance lapses at UBS. The sources added that the probe was still in its early stages and that charges or a settlement might not be brought.
According to a report, the DOJ investigation relates to previous rounds of sanctions implemented following Ukraine’s 2014 annexation as well as those imposed following Russia’s invasion in 2022.
A DOJ probe, according to P Morgan, is a hindrance for UBS, but the bank has created enough provisions to deal with any costs associated with the case.
UBS had $4.7 billion in litigation reserves at the end of June, and the bank might make an additional $2.2 billion in reserves for potential future legal losses.
In order to account for outflows associated with contingent liabilities, such as lawsuits, the Swiss bank also reduced its valuation of Credit Suisse by $3 billion.
In total, there are $6.8 billion in provisions and $3 billion in contingent liabilities, which amounts to about $10 billion in litigation-related reserves, according to JP Morgan.
Shivani Tanna reported from Bengaluru and John Revill from Zurich; Krishna Chandra Eluri edited the material.