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MAS said to be investigating claims UBS overcharged wealthy clients in Singapore

Probe relates to overcharging on debt securities' spreads; Swiss bank says it "intends to reimburse affected customers on a basis agreed with relevant authorities"

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UBS chief executive Sergio Ermotti described the bank's prolonged performance dip as unsatisfying even given a tough market.

Singapore

THE Monetary Authority of Singapore (MAS) is understood to be investigating claims of "inappropriate spreads" on debt securities transactions that were billed to wealthy clients in Singapore of Swiss bank UBS Group.

A spokesperson told The Business Times that the Singapore branch of UBS has reported the matter to MAS, adding: "We are unable to comment further as investigations are ongoing."

A report from Reuters said that UBS is working with relevant authorities to address inappropriate spreads it may have charged wealthy clients whose money was booked in Hong Kong and Singapore in debt securities transactions.

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"UBS intends to reimburse affected customers on a basis agreed with the relevant authorities. UBS expects the relevant authorities will subject UBS to reprimands and fines as a result of their investigations," UBS said in its third-quarter report on Tuesday. It noted that it had identified and reported the instances related to transactions between 2008 and 2015.

Switzerland's biggest bank is axing high-paying investment banking staff after a disappointing performance at the division prompted a 16 per cent slide in third-quarter net profit and put the group's 2019 profit goals further out of reach.

That being said, UBS got a boost from rich Asian clients. The key wealth management unit added US$15.7 billion in new money in the three months through September, helping lift assets overseen for the affluent to a record US$2.5 trillion, UBS said on Tuesday. 

While profit beat analysts' estimates, UBS said it will book a roughly US$100 million charge in the fourth quarter to restructure its investment bank, and warned that lower interest rates will hurt income from lending compared with last year.

Chief executive Sergio Ermotti, credited for rapidly turning UBS around after the financial crisis, announced a further US$90 million in expected annual cost savings at the investment bank, following a prolonged performance dip which Mr Ermotti described as unsatisfying even given a tough market.

An earnings beat in its core global wealth management unit helped offset a 59 per cent adjusted profit decline in its investment bank, putting the group's third-quarter net earnings of US$1.05 billion ahead of analyst expectations.

Mr Ermotti is running up against a number of headwinds in UBS's core markets, as wealthy clients hold back from trading, negative rates eat into margins and investment banking activity remains muted.

The bank's share price is down 16 per cent over the past year, hitting a six-year low in August and edging back towards the level it was when Mr Ermotti took charge in 2011.

In its investment bank, a fall in M&A work meant its advisory revenue fell 21 per cent, while equity and debt capital markets income were down 22 per cent and 15 per cent respectively. On the trading side, equities revenue fell 7 per cent, while foreign exchange, rates and credit revenue was steadier with just a 1 per cent fall.

UBS said its restructuring measures would include streamlining and merging its securities and trading activities and reducing headcount.

The bank brought in net new money of US$15.7 billion in its flagship wealth management business, as a sizeable jump in transaction-based income for the unit, newly under the joint management of long-time wealth management co-head Tom Naratil and former Credit Suisse star Iqbal Khan, helped restore operational growth.

While the group last year announced targets for a 15 per cent return on common equity for the year and a 77 per cent adjusted cost/income ratio, Mr Ermotti in March hinted the bank faced a steep climb to attain the profitability increase implied by the targets.

Its return on common equity tier 1 (CET1) capital slid to 12.1 per cent in the third quarter, bringing the return down to 13.8 per cent for the first nine months, compared with 16.3 per cent over the first nine months of 2018.

The bank's net interest income fell 8 per cent from a year ago, as negative interest rates in Switzerland and the euro zone made their mark.

Mr Ermotti is seeking to turn the corner after a year marred by huge legal fines, questions about succession planning and a slump in the share price.

UBS was one the first banks to pivot away from investment banking and toward wealth management after the financial crisis, becoming a model for rivals including Credit Suisse.

Still, increasing competition for rich clients, negative interest rates and a slowing economy are putting pressure on that business. UBS said in August that it would expand a policy of charging affluent clients for excess cash holdings. Clients will start feeling the impact on Nov 1 when the policy comes into effect.

UBS rose 2.1 per cent at 9:06 am in Zurich trading. Before today, shares of the lender had lost 6.5 per cent this year, compared with a gain of 15 per cent at Credit Suisse.

To lift the stock, UBS has earmarked US$2 billion for share buybacks through 2020. It is nearing its US$1 billion target in buybacks this year. REUTERS, BLOOMBERG