By Mike Caggeso
Associate Editor
UBS AG (UBS) was at the center of a tornado of crushing news yesterday (Tuesday), as it announced major changes to its board amidst pressure from the U.S. Department of Justice to reveal the names of top clients taking advantage of the bank's tax breaks.
Four of the No. 1 Swiss bank's board members - Stephan Haeringer, Rolf Meyer, Peter Spuhler and Lawrence Weinbach - will step down at the bank's Oct. 2 shareholder meeting.
In the frenzy of troubling news, UBS shares sank to a 10-year low, trading at $19.57 mid-afternoon Tuesday, before recovering slightly to close at $20.35.
The bank has been the biggest European casualty to the U.S. subprime-mortgage crisis. It has written down more than $38 billion in the last three quarters, and its stock has dropped more than 57% year-to-date.
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Continuing that trend, the bank will likely post a second-quarter loss with another markdown of about $4.9 billion, according to Bloomberg News estimates.
UBS said it will immediately submit board-member recommendations to the governance committee and will explore redefining directors' and management's responsibilities.
Identifying UBS' "John Doe" Clients
The board shakeup comes a day after the U.S. Department of Justice announced an investigation into whether the Zurich-based bank helped American clients dodge paying U.S. taxes.
The "John Doe" summons would allow the Internal Revenue Service to obtain information about unnamed U.S. customers with more than $10,000 in UBS accounts for possibly dumping their money in international accounts to evade taxes back home.
The federal judge handling the case has not yet granted permission to the IRS, but is expected to, said Jack Blum, a partner at Baker & Hostetler LLP and an expert on offshore banking, told Bloomberg.
This is where it gets really sticky for UBS because overseas accounts are one of its biggest revenue streams. Former UBS banker Bradley Birkenfeld, who pleaded guilty in federal court to conspiring to defraud the IRS by helping U.S. clients avoid reporting domestic taxes, said in court in June that UBS had about $20 billion in "undeclared" accounts held by U.S. customers, Reuters reported.
"The bank is in a very difficult position," Blum said. "If I were advising clients, I'd tell them to come clean; the people who come clean early will probably be allowed to get off with paying the tax, the interest and the penalties. Others could very easily face criminal prosecution."
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