In the late-August settlement, the US claimed
that in all, up to 10,000 accounts would be thrown open. In
addition to the names of UBS clients being disclosed, US regulators
have already received the confessions of another 5,000 or so
Americans under Washington’s voluntary disclosure facility –
effectively an offshore tax amnesty. The US says the UBS accounts
being turned over held more than $18 billion at one stage.

“This agreement gives us what we wanted –
access to information about those UBS account holders most likely
to have been involved in offshore tax evasion,” US Internal Revenue
Service Commissioner Douglas Shulman declared.

‘John Doe’ summons
dropped

GlobalData Strategic Intelligence

US Tariffs are shifting - will you react or anticipate?

Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.

By GlobalData

Learn more about Strategic Intelligence

In turn, the US has dropped its
catch-all ‘John Doe’ summons that sought for the names of as many
as 52,000 Americans with accounts at UBS. This had prompted the
Swiss to threaten that they would seize UBS’s data rather than
accede to what they saw as a “fishing expedition” that they
contended would break Swiss secrecy laws.

Switzerland could thus claim that its formerly
hallowed banking secrecy remains largely intact, at least
technically. UBS will have to hand over the information on those
4,450 accounts to the Swiss government for disclosure to the US in
order to avoid breaking Swiss law.

Still, the US may not be finished with its
pursuit of alleged American tax evaders who may have accounts at
other Swiss banks. Michael Ambuehl, the chief Swiss negotiator in
the UBS case, warned the US may request names of US clients.
Unconfirmed reports suggest that Credit Suisse, Julius Baer and
several other Geneva banks could be targets.

After the US settlement was revealed, the
Swiss government said it would sell its stake in UBS, originally
taken to stabilise the hard-pressed bank, by offloading CHF6
billion ($5.6 billion) of convertible notes.

UBS chief executive Oswald Gruebel said that,
with the settlement, the bank has put some of its worst problems
behind it but still needs to work hard to rebuild its badly damaged
reputation. The whole affair has left clients “with a bitter taste
in their mouths” and required extensive effort from all employees
to regain their trust, he said. A quick rebound by UBS seems
unlikely. The bank may not attract net new client money until 2011
reflecting the loss of more than 2,000 advisers caused by the
general malaise at UBS, according to analysts at Citigroup.

“Assets under management attrition relating to
the unforced adviser departures is expected to carry over in the
first half of 2010,” said analysts, led by Andrew Coombs in an
equity note after a meeting with Juerg Zeltner, co-head of UBS
wealth management. When this is combined with the expected offshore
outflows, a return to positive net new money might not occur until
2011, they said.

UBS has seen five consecutive quarters of
client redemptions at its wealth management businesses, totalling
nearly $150 billion. Over the 18 months to last June, the bank saw
2,147 departures of international client advisers, of which 1,440
were unforced, Citi analysts said.

“A further 678 departures are envisaged in the
second half 2009, before a return to growth in 2010,” analysts
said.

At the end of June, UBS had 3,593
international client advisers at the wealth management and Swiss
bank unit, helping customers manage CHF633 billion of invested
assets.

‘We need to work harder for our
money’

Among other Swiss banks, the most
positive tone has been taken by Boris Collardi, chief executive of
Bank Julius Baer, who believes the Swiss can avert a damaging
witch-hunt over their operations by US regulators. Still, Collardi
told a Zurich banking conference that “we will need to work harder
for our money in the years to come.”

At Credit Suisse, chairman Hans-Ulrich Doerig
said Swiss private banks may go through “painful” changes as the
Swiss negotiate tax agreements with other countries, such as
Germany and France which have been trying to weaken Swiss secrecy
laws. Switzerland is estimated to manage about $2 trillion, or just
over a quarter to the world’s private held offshore wealth.

At Pictet & Cie, senior managing partner
Ivan Pictet warned that industry margins will be squeezed as a
result of the turmoil.

“Our industry has to prepare itself for a
transition phase that will last between one and three years with
margins under pressure and, if so, an impact on employment,” Pictet
told the Swiss magazine Bilan.

New controversy

No sooner than the US settlement was
disclosed, when a new dispute broke out – this time with France.
French budget minister Eric Woerth claimed his government has
details of some 3,000 taxpayers with assets held in French banks,
many of them tax dodgers.

Pictet said of the French claim: “It’s not
necessarily a bluff but an intimidation measure aimed at French
nationals.”

He added, “Bellicose statements of this kind
are not welcome.”

Patrick Odier, a senior partner at the Lombard
Odier added to the controversy by suggesting that French banks
would have to sell their assets and branches in Switzerland, after
pledges by Paris to crack down on tax evasion.

Former UBS private banker Bradley Birkenfeld,
the whistleblower who helped US investigators with the prosecution
of the bank, was sentenced to 40 months in prison for his part in
conspiring to help rich Americans evade taxes. Birkenfeld played a
key role in disclosing to investigators how UBS helped Americans
hide assets, the Federal government said in court papers seeking
leniency. Birkenfeld, who had been seeking probation rather than
jail time, was sentenced by a judge who rejected motions for
leniency,

Birkenfeld, 44, was charged in April 2008 with
helping California billionaire Igor Olenicoff and others evade
taxes.