UBS (NYSE:UBS) finds itself in the cross-hairs of French authorities over an alleged involvement in helping French citizens evade taxes. The largest Swiss bank is under investigation in France since April over money laundering and tax evasion assistance charges leveled against it and, since then, French authorities have searched its offices in Strasbourg, Lyon and Bordeaux.  UBS and its smaller competitor Credit Suisse (NYSE:CS) have been fighting tax evasion charges from the U.S., the U.K. and Germany over recent years (see UBS and Credit Suisse Will Take Lumps from Swiss-British Tax Agreement). The biggest fallout of these charges has been the series of tax treaties which Switzerland has been forced to sign – something that seriously undermines the attractiveness of Swiss banks among investors across the globe.
We maintain a $15 price estimate for UBS, about 40% above the current market price. We attribute this considerable difference in price to widespread pessimism toward European banks in the wake of deteriorating sovereign debt situation in key Eurozone countries.
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The Swiss banking system has thrived for decades mainly on the secrecy it provides for account holders. But the string of tax evasion investigations by authorities of some of the world’s largest economies has caused some serious dents to the reputation of the strongly privacy-focused Swiss banks.
In the latest among these investigations, French authorities allege that UBS maintains two different ledgers to hide the money that French citizens have stashed away in offshore accounts. And the fact that UBS admitted to similar charges by the U.S. in 2009 does not help the Swiss bank.
UBS is clearly expected to witness the impact of these investigations on its business in coming years, as clients intending to use the bank’s services to capitalize on Switzerland’s perception as a tax haven will look for alternatives. This should reflect in slower growth in the size of assets the Swiss bank manages for its international clients, represented in the chart below.Notes: