UBS puts £1.18bn in reserves to pay for legal costs

UBS has put aside £1.18bn for potential legal costs and said it is talking to the US Department of Justice about resolving an investigation into currency market rigging.

The increase in legal reserves shows Switzerland’s largest bank is struggling to move on from past scandals, including a settlement for interest rate rigging and another to settle claims that UBS defrauded two US government-controlled companies before the 2008 financial crisis.

“We all knew there would be bumps in the road and some of these challenges remain,” said chief executive Sergio Ermotti.

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Aside from the legal setbacks, the bank’s earnings showed signs of health, especially at its flagship private banking division which caters for wealthy clients. It continued to bring in more money and increased profitability.

Authorities around the world are investigating allegations that traders at some major banks rigged the $5.3 trillion-a-day currency market, the world’s biggest but least regulated.

UBS said it is talking to the US Department of Justice’s criminal and anti-trust divisions about how to resolve their investigation into currency rate rigging.

Despite the reserves, UBS beat forecasts for third-quarter net profit with a 32 per cent rise from last year.

Analyst Dirk Becker, at Kepler Capital Markets, said: “All told, it will take UBS much longer and cost them much more to resolve their past, but at least the bank’s business is on track again.”

The bank is halfway through a three-year drive to focus on private banking, shrink its investment bank and abandon riskier activities such as bond trading.

The goal is to pay out at least half of profits to shareholders after hitting capital targets, which is expected this year.

The bank said that the Ebola virus adds to a range of concerns, from political tension in Ukraine to fiscal issues in the eurozone, that have kept clients on the sidelines and weighed on income.

Skirmishes with regulators and lawsuits over business dealings have become a mainstay of bank earnings globally following the financial crisis of 2008 and 2009.