UBS in the second quarter more than doubled the amount of litigation expenses related to its global wealth management franchise, which in the United States has been hit with a variety of investor complaints and regulator inquiries into its volatile YES options strategy marketed and sold by financial advisers.
When UBS reported earnings Tuesday morning, the bank’s investor presentations showed legal costs related to global wealth management increased to $121 million in the second quarter compared to $52 million in the first. No cause for the increase in legal costs is cited in the latest presentation, and a UBS spokesperson declined to comment to questions about the increase.
But the legal expenses linked to the YES — or Yield Enhancement Strategy — appear to be adding up. The Securities and Exchange Commission last month ordered UBS Financial Services Inc., the bank’s U.S. broker-dealer, to pay nearly $25 million to settle charges that it defrauded clients who invested in the complex options product.
According to the SEC, from February 2016 through February 2017, UBS marketed and sold to 600 advisory clients the Yield Enhancement Strategy, which borrows against an existing portfolio of debt or equity securities to purchase and sell S&P 500 options. UBS clients allocated about $2 billion to YES.
UBS has also been losing investor claims and arbitration awards of $1 million or more in arbitration with clients who invested in the YES strategy, according to recent decisions by panels overseen by the Financial Industry Regulatory Authority Inc. In May, UBS lost a $3.86 million legal claim to clients who invested in the YES options strategy.
Meanwhile, UBS Global Wealth Management in the Americas reported 6,139 financial advisers at the end of June, compared to 6,199 at the end of March, a drop of 1%. Global Wealth Management reported $1.2 billion of pre-tax profit for the second quarter, a decline of 11% when compared to the same quarter last year, according to the company.
The S&P 500 posted a decline of 20.6% over the first six months of the year, depressing revenues for firms across the wealth management industry.