Page 1 of 2

A tax dispute with France could have been settled years ago. Instead, UBS overseers are denied approval by shareholders after a $5 billion fine. How did the Swiss bank's board and management lose control?

Axel Weber saw it coming: the long-standing UBS chairman warned that he didn't think the Swiss bank's board and 13-person management under CEO Sergio Ermotti would win backing from shareholders, in an interview with Swiss tabloid «Blick» on Wednesday. This process is usually a formality – the vote was waved through by more than 89 percent of UBS' shareholders last year.

On Thursday, Weber's prescience was born out: only 41.67 percent of shareholders backed UBS' board and management – a scathing rebuke that revisits the Swiss bank's crisis years that included a 2008 state rescue. To be sure, the wealth manager isn't in crisis: the reason shareholders revolted is because they are nervous about the six-year-long criminal investigation in France that is poised to last until 2021 – at least.

Demurring Equal to «No»

More than 41 percent of shareholders want to keep their options open, in case they later decide to pursue legal action against management or board members. Against this backdrop, assurances by Weber and Ermotti that a pugnacious appeal to the gigantic fine handed down in February is in the best interest of shareholders fall flat.

Investors who demurred on the vote wanted the same insurance policy. Unfortunately for Weber and Ermotti, an abstention equals a «no» vote in shareholder terms – UBS missed the 50 percent mark needed for approval by a mile.

Other Pacts Cheaper 

The revolt is the culmination of a series of misfortunes in the Paris case. UBS' top echelon, on the defensive earlier this year over succession planning, is now also buried in the French avalanche. UBS' other settlements seem to indicate that the Swiss bank had options: it paid $780 million in 2009 in the U.S. for a tax evasion probe (harmless compared to the $2.6 billion Credit Suisse was slammed with five years later).

UBS paid 300 million euros ($336 million) in 2014 in Germany for similar dealings. While HSBC squeaked by with a 300 million euro settlement with French prosecutors 18 months ago, UBS was denied a similarly appealing deal as the British bank, Weber told shareholders on Thursday.

For one, France demanded a 1.1 billion euro «caution», or type of deposit, from UBS in 2014 – a high bar to back down into a three-digit million settlement from. Even setting the face-saving aside, UBS would hardly have viewed a billion-euro sum as justifiable to shareholders.

Stances Hardened