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UBS shareholders revolt over record $5B tax evasion penalty

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UBS shareholders refused to back management and directors in a revolt against the bank’s handling of events that led to a $5 billion penalty for helping French clients evade taxes.

A usually routine vote to release directors and executives from liability failed to get the 50% needed at the bank’s annual general meeting in Basel on Thursday. The decision means shareholders reserve the right to legal action against management. The last time UBS investors refused to back executives was in 2010, after the bank ran up massive losses during the financial crisis.

The decision adds to pressure on Chief Executive Officer Sergio Ermotti, who has suffered a number of executive departures as well as criticism from some shareholders over strategy. UBS, the world’s largest wealth manager, has set aside just one-tenth of the 4.5 billion-euro ($5 billion) it was ordered to pay as it appeals one of the highest penalties ever imposed on a Swiss bank.

It’s at least the third time in two weeks that shareholders at a large European company are standing up against management. On Friday, investors in Bayer rebuked the drugmaker’s chief executive officer over the $63 billion acquisition of Monsanto and the handling of legal challenges linked to the deal. ING shareholders refused to back the supervisory and executive boards over their handling of money laundering issues.

UBS investors had been advised ahead of the meeting by U.S.-based Institutional Shareholder Services to reject the annual request to release directors and executives from liability. Glass Lewis, another adviser, said shareholders should abstain when asked to vote on the directors’ liability at the May 2 annual general meeting.

While the French verdict could be overturned on appeal, “it remains the case that the company has been convicted of criminal wrongdoing and has incurred a record penalty as a result; this is of serious concern to shareholders," ISS said at the time.

The last time UBS shareholders refused to back management was almost a decade ago. In 2010 they voted against actions for 2007, the year the Zurich-based bank amassed billions of losses related to subprime mortgages.

In 2012, early in Ermotti’s tenure, shareholders protested against management actions for the prior year after Switzerland’s biggest bank suffered a $2.3 billion loss from unauthorized trading. At that time, however, the motion was approved by a slim margin.

Bloomberg News