UBS Under Investigation in Hong Kong Over IPOs


UBS is currently being investigated by regulators in Hong Kong in connection with its role in some initial public offerings there that later turned awry, putting it at risks of fines or suspensions.

The revelation was made by the Swiss bank on Friday.

It disclosed that Hong Kong’s Securities and Futures Commission informed it this month of possible penalties, both against the bank and some of its employees, for sponsoring the affected IPOs.

The specific IPOs for which UBS was been probed were not specified.

But the New York Times reports that IPOs of China Forestry and China Metal Recycling were two of the offerings the bank had worked on and later turned problematic. Both companies have entered liquidation.

The shares of another company, Tianhe Chemicals, whose IPO UBS helped with in 2014, have been pulled from trading since last year. The stock was suspended pending investigation on potential accounting issues.

In a one-paragraph statement in its latest quarterly report, the Swiss bank shed more light on the possible consequences of the investigation by Hong Kong regulators.

“If such action is taken, there may be financial ramifications for UBS, including fines and restitution orders,” the statement read. “Such action could also result in suspension of UBS’s ability to provide corporate finance advisory services in Hong Kong for a period of time.”

The city has been one of the world’s leading IPO markets in the past 10 or so years. The market has been particularly boosted by many big listings by companies in mainland China. However, a number of these offerings often end up being fraudulent transactions.

Regulators in Hong Kong have stepped up efforts to guard against IPO frauds in recent years to preserve the status and integrity of the major Chinese financial center’s market. They have been targeting both company representatives and banks that are suspected of providing fraudulent or misleading information for stock market listings.

In 2012, the Securities and Futures Commission revoked the license of an IPO underwriter owned by Taiwan after securing a court injunction compelling the company to re-purchase all shares sold in the offering.

The regulators also made legislation guiding the roles of banks in an IPO tougher three years ago. They made it the duty of the banks to prepare documents for offerings and ensuring due diligence is done to guard against misleading information. Threat of criminal liability was issued to the banks and their employees who sponsor intentionally misleading listings.

The commission has confirmed the ongoing investigation, but refused to comment any further.

UBS said it earned 827 million Swiss francs ($835 million) in the third quarter, tumbling from 2.1 billion francs during the same quarter a year ago. Profits in the same period last year was significantly boosted by 1.3 billion francs in one-time tax benefits.

The Swiss bank also said it saved 1.5 billion francs in annual costs. It has set a new target of saving another 2.1 billion francs by the end of next year.