Business Context and Reporting Period
This Form 6-K filing by UBS Group AG and UBS AG, dated May 20, 2015, reports on the resolution of industry-wide investigations into the global foreign exchange (FX) markets. The filing details agreements reached with the US Department of Justice (DOJ), the Board of Governors of the Federal Reserve System (Fed), and the Connecticut Department of Banking (CT DOB).
Key Financial Metrics and Resolutions
- FX Resolution: UBS received conditional immunity from prosecution for FX conduct from the DOJ Antitrust Division. No criminal charges or DOJ fines were levied regarding the FX matter.
- LIBOR Resolution: The DOJ terminated a 2012 Non-Prosecution Agreement. UBS AG agreed to plead guilty to one count of wire fraud regarding legacy LIBOR conduct, pay a fine of USD 203 million, and accept a three-year probation term.
- Fed and CT DOB Penalty: UBS agreed to pay a penalty of USD 342 million to the Fed and CT DOB following a cease and desist order regarding unsafe business practices in its FX business.
- Total Financial Impact: The combined penalties total USD 545 million. The firm states it is fully provisioned for these amounts, resulting in no financial impact on second-quarter 2015 results.
Material Changes and Management Commentary
Management, including Chairman Axel A. Weber and CEO Sergio P. Ermotti, characterized the conduct of a small number of employees as unacceptable. They emphasized that UBS self-detected the matter and reported it to authorities, which facilitated the conditional immunity granted by the DOJ. The firm noted significant investments in strengthening control frameworks and compliance programs. The filing confirms that the DOJ will not file charges concerning UBS's V10 FX-related structured products or precious metals business.
Risks and Contingencies
- Ongoing Investigations: UBS continues to cooperate with ongoing investigations by other authorities regarding the industry-wide FX matter, including investigations of individuals.
- Remedial Measures: As part of the resolution with the Fed and CT DOB, UBS has agreed to undertake a series of remedial measures.
- Forward-Looking Statements: The filing includes standard cautionary language that actual developments may differ materially from expectations due to risks and uncertainties.
Investor Verification Checklist
- Verify the specific terms of the remedial measures agreed upon with the Fed and CT DOB.
- Confirm the status of ongoing investigations into individuals related to the FX matter.
- Review the Q2 2015 earnings report to confirm the absence of new charges related to these resolutions.
- Assess the impact of the LIBOR guilty plea on UBS AG's regulatory standing and probation requirements.