UBS Says $1.2 Billion Charges ‘Best Estimate’ of French Tax Fine

(Bloomberg) --

UBS Group AG Chief Financial Officer Kirt Gardner said the 1.1 billion euros ($1.24 billion) set aside to cover the cost of a French tax-evasion case are the bank's “best estimate” of the final cost.

The Swiss lender is counting on a further reduction of the French penalties after they were cut in December to 1.8 billion euros from 4.5 billion euros previously. The Swiss bank on Tuesday said that it took a provision of $740 million in the fourth quarter, adding to the 450 million euros the bank had earlier earmarked to cover the costs of the case.

UBS has been fighting a seven-year battle with French authorities who allege the bank illegally laundered funds by providing customers with services to hide assets from tax authorities. While a French court cut the penalties the bank faced by more than half, UBS is appealing to the French Supreme Court on the ruling.

That move enabled UBS “to thoroughly assess the verdict” and “determine next steps in the best interest of its stakeholders.” The bank also cautioned that “a high degree of estimation uncertainty” means actual penalties and civil damages could exceed or be less than what it has provisioned.

UBS Appeals $2 Billion Tax Penalty at French Supreme Court

UBS said it's reviewing the implications from the French dispute for the calculation of its capital ratio together with Swiss regulator Finma. That review may add an amount to its operational risk-weighted assets in the single-digit billions of dollars in the three months through March, according to the bank.

The financial strength of a bank is measured by its equity as a proportion of its assets-weighted according to risk. To account for potential losses from fines, lenders have to take account of so-called operational risk.

UBS decided in early discussions with French authorities in 2014 not to settle because it didn't want to admit guilt, and has been fighting in the courts since. Bloomberg reported in December that UBS was reluctant to accept a guilty decision that could compromise business in other jurisdictions, even though the fine had been significantly reduced.