Banking
giant UBS is in discussions with clients who suffered significant losses on
complex foreign exchange (Forex) derivatives following market volatility
triggered by President Donald Trump’s tariff announcements, according to people
familiar with the matter.
Hundreds of Millions in
Client Losses After Trump’s Market Turbulence
The world’s
second-largest wealth manager is considering compensation for certain clients
who invested in sophisticated currency products that performed poorly when
Trump’s tariff proposals in early April sparked dramatic currency movements,
particularly strengthening the Swiss franc against the dollar in its largest
monthly gain since 2015.
Several
hundred UBS customers, primarily in Switzerland, have experienced substantial
investment losses collectively reaching into hundreds of millions of Swiss
francs, one person with knowledge of the situation said, requesting anonymity
due to the sensitive nature of the discussions.
“The
extreme volatility in the markets of the last few weeks has impacted certain
investments,” UBS acknowledged in a statement sent to Reuters. “The
vast majority of our clients hold diversified investment portfolios and have
done relatively well in this volatile time. We are analyzing potential
unexpected effects with our clients.”
FX Derivatives
The
products at the center of the controversy are “conditional target
redemption forwards” – complex derivatives that allow clients to exchange
currencies at preferential rates under specific market conditions but can
generate substantial losses if exchange rates move beyond predetermined
thresholds.
Some
affected clients, including wealthy retail customers, claim they were sold
products inappropriate for their investment sophistication level. In one case
reviewed, a client lost more than half their investment made in February on a
dollar-Swiss franc derivative, according to documentation dated May 9.
The Swiss
Association for the Protection of Investors reported that over 30 individuals
have come forward regarding losses from UBS-marketed structured currency
derivatives. The non-profit organization noted most complainants were wealthy
private individuals with assets exceeding 1 million francs but lacking
specialized knowledge about these complex financial instruments.
“Not Suitable for All
Investors”
While the
reported losses represent only a small fraction of UBS’s $5.9 trillion in
assets under management, the timing is particularly sensitive as the bank
awaits government proposals regarding additional capital requirements following
its Credit Suisse acquisition last year.
During an
April earnings call, UBS Chief Financial Officer Todd Tuckner addressed market
volatility, noting that “when there’s volatility, there’s going to be
clients that generate gains from it that volatility and clients who generate
losses.”
Financial
institutions face regulatory obligations to ensure investment products match
client risk profiles and financial sophistication. The documentation for the
derivatives in question included disclaimers stating they were “not
suitable for all investors” and were “only suitable for experienced
investors.”
This article was written by Damian Chmiel at www.financemagnates.com.
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