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UBS pays out in German tax case as lawsuits target private bank

By Katharina Bart

ZURICH (Reuters) - UBS AG booked a near $300 million charge in the second quarter mainly to settle claims it helped wealthy Germans to dodge taxes, the latest in a string of lawsuits that have targeted its private banking business.

The Zurich-based lender's offices in Germany were searched last year as part of a probe sparked by a CD with details of UBS clients that was purchased by the German state of North Rhine-Westphalia (NRW).

UBS, which faces a separate probe in Germany and similar probes in Belgium and France, took a 254 million Swiss franc ($280.8 million) charge and said it aimed to have all its German clients come clean by year-end, from more than 95 percent.

Yet the charge is only one of a slew of legal issues with which the bank is contending. It hiked its provisions against future litigation to nearly 2 billion francs but warned this might still not be enough to cover possible fines and charges.

The bank has taken a strategic decision to scale back its risky investment banking operations in favor of private banking and asset management, but remains under threat from possible past market transgressions.

Underscoring that risk, it said in its quarterly results statement U.S. regulators were probing its off-market share trading venue or dark pool, an area where Germany's Deutsche Bank also said it was under scrutiny.

UBS said it was cooperating with inquiries.

Deutsche meanwhile said its renewed focus on investment banking had paid off as it reported a 16 percent increase in quarterly pretax income.

UBS reported a rise in quarterly net profit to 792 million francs from 690 million a year earlier, when results were marred by an $885 million settlement with the U.S. housing regulator over the mis-selling of mortgage-backed bonds.

The result beat expectations in an analyst poll conducted by Reuters, which averaged 774 million francs.

The settlement in the German tax case comes less than a week after a 15-month French inquiry into UBS escalated, with the bank put under formal investigation on allegations it laundered the proceeds of tax evasion.

UNDECLARED ACCOUNTS

UBS was ordered to stump up a 1.1 billion euro ($1.5 billion) guarantee payment, which it called "unprecedented and unwarranted" and will appeal.

Switzerland effectively ended its long-cherished banking secrecy in May by agreeing to join other countries in sharing tax information, once a standard method of sharing is agreed.

Meanwhile, Swiss banks have spent years attempting to clear their accounts of undeclared accounts under massive international crackdowns on tax evaders.

The legal problems have overshadowed a near two-year overhaul to shrink UBS' investment bank, abandoning riskier activities in its bond trading arm.

The ultimate goal of its restructuring drive is bigger dividends. UBS aims to return at least half of its profits to shareholders if it can maintain capital - which stands at 13.5 percent under new global rules - at or above current levels through to the end of 2014 and achieve a ratio of 10 percent when applying its own stress tests.

Profit at its private bank plunged 43 percent on the cost of the German settlement. The unit, which is measured by its ability to win fresh funds from new and existing clients, took in 10.7 billion francs in net new money.

The tax probes are only one of UBS' legal worries. It is among a handful of large banks regulators are investigating over alleged rigging in the $5 trillion-a-day foreign currency market. In March, UBS said it had widened an internal probe of forex to include precious metals trading.

In the U.S., authorities are probing UBS for criminal fraud after a former broker in Puerto Rico allegedly directed clients to improperly borrow money to buy mutual funds that later plunged, Reuters reported last month.

The Swiss bank was fined $780 million for helping wealthy U.S. citizens avoid taxes in 2009.

As of Monday, shares in UBS had fallen by almost 2 percent so far in 2014, outperforming rival Credit Suisse, which was down 6.7 percent on the year. CS last week posted its biggest loss since the financial crisis in 2008, the result of a 1.6 billion franc fine from U.S. authorities for helping clients evade taxes.

(Additional reporting by Joshua Franklin; Editing by David Holmes)

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