SEC, State Probes will be helped by the UBS emails showing the Bank trying to off load problems onto investors.
The U.S. Securities and Exchange Commission and at least nine state regulators are investigating how banks sold the bonds. Individual investors have also filed lawsuits and complaints with state and federal regulators.
``Here you've got these e-mails, and that could give prosecutors a more favorable forum, said John Coffee, a Columbia University professor who specializes in corporate law.
Karina Byrne, a spokeswoman for UBS in New York, said in a statement yesterday the bank was ``disappointed with Galvin's complaint and ``will defend the specific allegations.
Zurich-based UBS is cutting 5,500 jobs, shutting businesses at the investment-banking unit and trying to stem client defections after posting the highest net losses in the subprime crisis of any bank in the world. The U.S. Justice Department is also investigating whether it may have helped clients evade American taxes.
The bank sold $42 billion of auction-rate securities for municipalities and student loan corporations between 2002 and 2007, second to New York-based Citigroup Inc., according to data compiled by Thomson Reuters. The bank earned fees from underwriting and managing the auctions.
Galvin is seeking to force UBS to liquidate all the auction-rate bonds it sold to investors in Massachusetts, which he estimated totals $190 million. He is also probing Merrill Lynch & Co. and Bank of America Corp.
The Swiss bank sector has also seen problems with its investment banking segment. A lack of client activity has paired with a struggling U.S. dollar to significantly decrease revenues. The USD has fallen 9% since the start of the year and the strong value of the Swiss franc is hurting sales. Fears over additional quantitative easing by the U.S. government should further depress the dollar's value, and lower UBS's investment banking revenues.
UBS AG and Credit Suise Group AG may have to almost triple the amount of cash they hold in relation to customer deposits under new proposals by Swiss regulators.
Switzerland may be the first country to introduce rules requiring banks to keep more liquid assets on hand after the global credit crisis. Such regulations, according to Tobias Lux, a spokesman for the Swiss Fiancial Market Supervisory Authority, are aimed at boosting the banks' short-term liquidity buffers, which ultimately creates greater security for customer deposits. However, they could also significantly decrease profits for the two Zurich-based banks as well as any other financial institutions subject to similar regulations.
The costs of extending long-term funding and holding more liquid assets could amount to as much as 30 percent of pretax profits at European banks, according to Credit Suisse analysts Jagdeep Kalsi, Daniel Davies and Guillaume Tiberghien.
Additionally, the stricter lending requirements would increases the cost of capital and decrease the amount of loans issued by UBS and Credit Suisse, which together control about one third of domestic lending in Switzerland.
Dow Jones reported that the U.S. justice and treasury departments could file lawsuits against UBS AG should the Swiss parliament fail to back a deal under which UBS AG would be able to hand out client data of alleged U.S. tax dodgers to U.S. regulators.
Since the deal could undermine Swiss banking secrecy, many members of parliament could refuse to support it, which could leave UBS vulnerable to US lawsuits.
President Obama's plan to restrict the activities of commercial banks, specifically outlawing proprietary trading and preventing commercial banks and institutions that own banks from owning, investing in or sponsoring private equity and hedge funds as well as limiting the size of banks could greatly reduce future revenues and growth potential for US and foreign banks.
UBS and Credit Suisse may lose than exemption that allows them to exclude loans made within the country from a leverage ratio set by the Swiss regulator. With this exemption lost, the two Swiss banks will be expected to increase capital levels in order to accommodate the set leverage ratios, which will increase costs of capital for them.
Swiss bank UBS AG (UBS) posted an $18 billion loss in 2008, and said its outlook for 2009 is “extremely cautious.”
“Citibank was saying on 10th March, 2009 that it had exhausted all skeletons in the cupboard and was only left with profits,” Roger Nightingale, global strategist at Pointon York Ltd. in London, said in a Bloomberg Television interview. “UBS today said it probably still has some skeletons.”