UBS Will Contest RMBS Civil Complaint Filed by United States Department of Justice

UBS is confident in its legal position, based on the facts and the law

ZURICH & BASEL, Switzerland–(BUSINESS WIRE)–Regulatory News:

The United States Department of Justice (“DOJ”) today filed a civil
complaint in the U.S. District Court for the Eastern District of New
York related to UBS’s issuance, underwriting and sale of residential
mortgage-backed securities (“RMBS”) more than a decade ago. The
complaint seeks unspecified monetary civil penalties under the Financial
Institutions Reform, Recovery, and Enforcement Act (“FIRREA”) regarding
transactions that date back to 2006 and 2007.

The DOJ’s claims are not supported by the facts or the law. UBS will
contest the complaint vigorously in the interest of its shareholders.
UBS is confident in its legal position and has been fully prepared for
some time to defend itself in court.

UBS intends to rely on the following significant facts, among others, in
its defense of this action and expects those facts to be substantiated
in the course of the proceedings:

UBS Suffered Massive Losses on U.S. Mortgage-Related Assets,
Including the RMBS Cited in the Complaint, Negating any Inference of
Fraud

  • UBS invested USD 100 billion in U.S. residential mortgage-related
    assets and lost more than USD 45 billion when the housing market
    collapsed, including losses of nearly USD 900 million on the RMBS
    referred to in the complaint – more than the losses on the
    certificates UBS sold to any other single investor. This fact alone
    negates any inference that UBS engaged in an intentional fraud that
    was flatly against its own economic interest.

UBS Was Not a Significant Originator of U.S. Residential Mortgages

  • UBS originated only a miniscule proportion of U.S. residential
    mortgages between 2005 and 2007 (USD 1.5 billion of more than USD 5
    trillion) and did not originate any subprime loans. The vast majority
    of loans underlying the 40 RMBS listed in the complaint were
    originated by other financial institutions, many of which issued their
    own RMBS. UBS stopped issuing RMBS in 2007.

UBS Fulfilled its Disclosure Obligations to Sophisticated RMBS
Investors

  • The RMBS cited in the complaint were purchased by some of the biggest
    financial institutions in the world and other highly sophisticated
    investors who had access to loan data from a range of sources. In its
    offering documents, UBS repeatedly disclosed the risks of investing in
    the RMBS and made clear that investors could lose money if home prices
    declined.

Any Penalty Sought by the DOJ Would be Limited, at Most, to Losses to
FIFIs

  • Following the savings and loan crisis, Congress enacted FIRREA in 1989
    to protect federally-insured financial institutions (“FIFI”) and their
    depositors from insider abuse, and it was used for this purpose for
    two decades. This law was never intended to cover all sales of
    securities to all investors merely because a FIFI is among the
    investors or other parties involved in the transaction, as the DOJ
    seeks to misapply it here. UBS believes that FIRREA limits any claim
    against UBS to sales of the RMBS to FIFIs, who purchased only a small
    fraction of the certificates sold by UBS. The current losses on all
    certificates sold to FIFIs are lower than UBS’s own losses of nearly
    USD 900m in these same RMBS.

The Alleged Misrepresentations Did Not Cause RMBS Investor Losses

  • To obtain a FIRREA penalty based on investor losses, the DOJ must
    persuade the court to accept not only that UBS (despite its own
    massive losses on U.S. mortgage-related investments) engaged in
    intentional fraud but also that the alleged misrepresentations caused
    losses to investors in these RMBS. This theory flies in the face of
    the history of the housing crisis, which began with an unprecedented
    and unexpectedly severe collapse in U.S. home prices, triggering
    mortgage defaults and RMBS losses. The historic, market-wide downturn
    is commonly understood to be the result of a range of factors that
    created a housing bubble, including low interest rates and government
    policy.

Links

www.ubs.com/media

Notice to investors

This document and the information contained herein are provided solely
for information purposes, and are not to be construed as a solicitation
of an offer to buy or sell any securities or other financial instruments
in Switzerland, the United States or any other jurisdiction. No
investment decision relating to securities of or relating to UBS Group
AG, UBS AG or their affiliates should be made on the basis of this
document. Refer to UBS’s third quarter 2018 report and its Annual Report
on Form 20-F for the year ended 31 December 2017 for additional
information. These reports are available at www.ubs.com/investors.

Cautionary statement regarding forward-looking statements

This document contains statements that constitute forward-looking
statements. While these statements represent UBS’s judgments and
expectations concerning the matters described, a number of risks,
uncertainties and other important factors could cause actual
developments and results to differ materially from UBS’s expectations.
Additional information about those factors is set forth in documents
furnished and filings made by UBS with the US Securities and Exchange
Commission, including the third quarter 2018 report and the Annual
Report on Form 20-F for the year ended 31 December 2017. UBS undertakes
no obligation to update the information contained herein. UBS
specifically prohibits the redistribution or reproduction of this
material in whole or in part without the prior written permission of
UBS, and UBS accepts no liability whatsoever for the actions of third
parties in this respect.

Contacts

UBS Group AG and UBS AG
Investors
Switzerland:,
+41-44-234-4100
Americas, +1 212-882-5734
or
Media
Switzerland:
+41-44-234-8500
Americas: +1-212-882-5858
UK: +44-207-567-4714
APAC:
+852-297-1-8200
www.ubs.com

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