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Clients hit after Trump's tariffs sparked jump in Swiss

franc

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Clients' combined losses run into hundreds of millions,

source

says

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UBS says it's 'analyzing potential unexpected effects'

By Stefania Spezzati, Oliver Hirt and Ariane Luthi

LONDON/ZURICH, May 16 (Reuters) - UBS is in

talks to compensate some clients for losses after they were sold

complex foreign-exchange derivatives that wiped out much of

their investments when U.S. President Donald Trump's tariffs

sparked wild moves in currencies, sources familiar with the

matter said.

Several hundred customers of the Swiss banking giant are

affected, the sources said, some of whom have seen a significant

hit to their investments. They include clients in Switzerland

and their combined losses run into hundreds of millions of

francs, one of the sources said.

Among those asking for compensation from UBS for the losses

incurred are wealthier retail customers who argue they were sold

complex products that they did not understand, the second source

said, adding that they were only suitable for sophisticated

investors.

In one example, a UBS client has lost more than 50% of an

investment made in February into an FX derivative designed to

bet on the direction of the dollar versus the Swiss francs,

according to a document detailing the performance of the

investment dated May 9 and seen by Reuters.

That client, together with three others, have accumulated

more than 4 million Swiss francs ($4.7 million) in losses from

the derivatives, one of the sources with knowledge of their

cases said, speaking on the condition of anonymity because of

the sensitivity of the matter.

Reuters could not ascertain the total amount of clients'

losses and how much UBS is considering in compensation.

"The extreme volatility in the markets of the last few weeks

has impacted certain investments," UBS said in a statement in

response to questions.

"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," it added.

While the scale of the client losses reported by sources

so far is a small fraction of the $5.9 trillion overseen by UBS,

the world's No. 2 wealth manager, it is rare for banks to

consider compensation. Banks are required to ensure financial

products are suitable for the clients to which they sell them.

Discussions over client losses come at a sensitive time

for UBS, with the Swiss bank awaiting a government proposal on

how much additional capital it might have to hold to reflect its

bigger size following its rescue of Credit Suisse in March 2023.

A spokesperson for Swiss Financial Markets regulator FINMA

said it does not comment on its supervisory activities or

individual cases and that it closely monitors developments at

the supervised institutions, including with partner authorities,

without further elaborating.

Trump's announcement of tariffs in early April sparked a

sharp drop in the dollar and the biggest monthly gain for the

safe-haven Swiss franc since 2015.

UBS sold clients 'conditional target redemption forwards', a

February prospectus of the product seen by Reuters and sources

said.

These are exotic derivative FX products that allow clients

to buy dollars and sell Swiss francs at a more favourable rate

than the prevailing market rate, but can cause big losses if the

rate moves past certain levels over a set period of time,

according to the prospectus. Losses accumulate and can exceed an

initial investment.

In the disclaimer accompanying the prospectus, UBS said that

"the instruments are not suitable for all investors, and trading

in these instruments is considered risky and is only suitable

for experienced investors".

It also added that "these instruments may involve a high

degree of risk and be highly volatile in response to

fluctuations in interest rates, exchange rates, and other market

conditions."

SUITABILITY

The Swiss Association for the Protection of Investors, a

non-profit organization, told Reuters that more than 30 people

had come forward including via a platform launched on Thursday

to report damages suffered from structured currency derivative

products marketed by UBS.

Most of the clients who had got in touch were wealthy

private individuals with assets of more than 1 million francs,

but who lacked the relevant knowledge of the products such as

those sold by UBS, the association said.

Swiss media including NZZ, SonntagsZeitung and blog

Inside Paradeplatz previously reported that several hundred

clients were affected by the losses.

Target redemption forwards are typically sold to corporate

clients and well-heeled and sophisticated investors.

In the example of the product that caused more than 50%

losses, the investor agreed to buy dollars and sell francs in

$300,000 chunks if the market rate moved above or below certain

thresholds, according to a prospectus for the investment dated

February 10 and seen by Reuters.

But below a 'kick-in level' defined in the terms of the

investment, the customer is forced to buy dollars at an exchange

rate that locks in a loss, the term sheet showed.

Asked on an earnings call with journalists at the end of

April about clients facing FX losses, CFO Todd Tuckner said that

"when there's volatility, there's going to be clients that

generate gains from that volatility and clients who generate

losses."