UBS Faces Year of Uncertainty as Lengthy Probe Hangs Over Hamers

Ralph Hamers

(Bloomberg) -- UBS Group AG’s board members are backing Chief Executive Officer Ralph Hamers as he faces a lengthy Dutch legal battle over his role in a money laundering scandal at his previous employer that has complicated efforts to put his stamp on the business.

The new CEO, hit with a probe by the Dutch public prosecutor barely a month after taking over in November, faces an investigation that’s expected to drag on at least a year once the process formally starts next month, according to people familiar with the matter who requested anonymity. UBS’s directors -- who before Christmas had gone as far as discussing possible contenders to replace Hamers in a worst case scenario -- for now are putting their weight behind him, arguing the probe isn’t an immediate threat, a person briefed on the discussions said.

Switzerland’s largest bank is contending with the risk that its CEO could be indicted for breaching anti money laundering and compliance rules while at the helm of ING Groep NV. That represents a second major legal issue, as the bank seeks to appeal a record fine for helping French clients dodge taxes. Chairman Axel Weber has said he is confident that Hamers will make a good CEO, while declining to predict whether he can stay on.

“I am very confident that he has the ability to do a good job as the CEO of UBS,” Weber said in the Jan. 12 interview with Bloomberg TV. “We are monitoring the situation and we’ll update it as events happen.”

The Dutch prosecutor’s office is currently preparing for the investigation and can’t predict a time-line, Audrey Nijhof, a spokeswoman for the office, said in an email to Bloomberg. UBS declined to comment.

Hamers has so far kept a low profile in his new role, appearing at just one public fintech conference in Singapore in December as well as in virtual, recorded townhalls with employees. He is scheduled to present fourth-quarter results next week and will be speaking with journalists, analysts and investors.

The case against the new CEO adds to a 4.5 billion-euro ($5.1 billion) fine for helping French clients evade taxes that has hamstrung UBS and its share price for two years. The Swiss bank had been trying to settle the matter for less than the 300 million euros it paid to resolve a similar case in Germany, only to be hit by the record fine when the settlement failed. It’s now appealing in an effort to reduce the amount, something Weber said last year was a “top priority.”

Against that backdrop, Hamers’s legal woes add another potential miscalculation on behalf of the bank. Weber, who played a key role bringing in the new CEO, has been speaking with supervisory board members about how the probe will affect Hamers’ ability to lead the bank, people with knowledge of the matter have said. Some board members were caught off-guard after due diligence during his hiring suggested the scandal was effectively over, Bloomberg has reported.

A previous Dutch probe into the matter ended in a settlement in 2018, with ING taking responsibility. Political pressure led to the resignation of Chief Financial Officer Koos Timmermans, but Hamers kept his role until he decided to move to UBS. The public prosecutor said in 2018 that it didn’t find enough evidence for criminal accusations against individuals at ING, including the top management.

Since then, however, Dutch prosecutors have increasingly come under pressure for not holding individuals accountable in banking scandals. Financial activist Pieter Lakeman appealed the ING decision and sought charges against Hamers personally, leading judges to order the probe. In a similar case involving ABN Amro Bank NV, the public prosecutor is weighing the possibility to prosecute any culpable individuals once a settlement with the company is reached, Het Financieele Dagblad reported on Wednesday.

While the December ruling to look into Hamers’s personal responsibility loosely outlined money laundering and breaches of compliance law as accusations against him, the investigation will allow prosecutors to gather more information and the defense to build its case. It will likely involve new information from interviews with key people, including Hamers, as well as emails and other communications that were not part of the previous case against ING, the people said.

The prosecution could still come to the same conclusion as in 2018 -- that there’s not enough evidence to hold Hamers personally responsible -- the people said. UBS’s management board so far has pinned its support for Hamers on that assumption, according to another person. However, if the case does go to trial, it would only prolong the matter and Hamers could be asked to attend in person.

That would leave UBS with a CEO mired in a criminal case just as its chairman prepares to step down in April 2022 after a decade at the bank. While the bank has already examined some potential successors for Weber, it will intensify the process after the annual general meeting in April, he has said.

In its decision in December to investigate Hamers, the Dutch court cited “an alarming email message” from the head of legal affairs at ING in 2014 who urged Hamers to take action on the compliance shortcomings, as not only ING but the management board risked being prosecuted. A year later, ING received an inspection report from the European Central Bank detailing failings in its compliance functions, and it was penalized by the Dutch central bank.

A key part of the investigation will be establishing the recipients of those warnings. Hamers himself had not “taken public responsibility for his actions,” the court said in December, explaining its decision to order the probe.