Swiss prosecutors file charges against Credit Suisse and UBS

Good morning from the Financial Times. Today is Tuesday, December 2nd, and this is your FT News Briefing. UK pension funds are worried about an AI bubble, and the US and the UK are getting close to a truce in the battle over pharmaceuticals. Plus, Credit Suisse and UBS are facing criminal charges from the tuna bond scandal. I'm Sonia Hudson, and here's the news you need to start your day.

UK pension funds are cutting back their exposure to U.S. equities. They're concerned about an AI bubble, plus the fact that the market has become more concentrated in a small number of tech stocks. Funds that manage more than 200 billion pounds in assets told the FT they've been shifting to other geographical regions or adding protection against a potential market dip.

The UK's defined contribution pension sector, where employees build individual retirement savings, is especially sensitive to potential stock market swings. Savers that are 30 years from retirement typically have up to 80% of their assets in global equities, most of them dominated by U.S. big tech stocks.

Swiss prosecutors filed criminal charges against Credit Suisse and its owner UBS yesterday. They're connected to the Mozambique tuna bond scandal. Prosecutors allege that the bank failed to prevent a suspicious $7 million payment. because of, quote, organizational shortcomings. UBS took over Credit Suisse several years after the scandal, and the charges raised questions about whether criminal liability gets transferred during a takeover.

Here to talk more about this is the FT's Mercedes Rule. Hi, Mercedes. Hi. All right, lots to unpack here. Can you first explain what the Tuna Bond scandal is? So the Tuna Bond scandal... dates back to 2013 when Mozambique, which is one of the poorest countries in the world, borrowed around $2 billion to fund maritime security projects and a state tuna fishing fleet.

The problem was that much of this money was actually misused. Bankers, intermediaries and government officials were accused of taking bribes and kickbacks. And the country was ultimately left with... like pretty crippling debts and a collapsed development project. Mercedes, what role do Swiss prosecutors say that Credit Suisse as a company played in this scandal? So Swiss prosecutors have filed charges against Credit Suisse, by extension UBS, which...

took Credit Suisse over in 2023 for what they describe as organisational deficiencies. The $7 million payment in this case is one of the payments that flowed. through the $2 billion borrowing deal Mozambique took out in 2013. So prosecutors say Credit Suisse failed to implement adequate internal safeguards, basically. In particular, when this suspicious seven... million payment arrived in 2016, the bank, through a compliance officer, did not file a suspicious activity report as required.

In the eyes of prosecutors, this qualifies as a failure to prevent money laundering, not just an isolator, but systemic shortcomings. And thus Credit Suisse, and now its successor UBS, are being charged as corporate entities for the failure to stop illicit flows. UBS said in its statement that it...

rejects all of these conclusions by the attorney general's office, and they're going to vigorously defend their position. So I mentioned earlier that this could set a legal precedent. Tell me more about that. This could be an interesting test case for criminal liability after a merger. A lawyer I spoke to said it might help settle whether a company's criminal liability survives a merger in Switzerland. So UBS bought Quentin Suisse in 2023.

And prosecutors are effectively arguing UBS inherits the old bank's exposure. And Swiss courts haven't actually definitively answered that question before. So this is why it could set an important precedent. What do you think this case will ultimately mean for UBS and its business? So for UBS, this is kind of another uncomfortable legacy issue.

from rescuing Credit Suisse. The bank has already been working through quite a long list of old legal cases from mortgage security settlements in the US, to misconduct investigations linked to Credit Suisse's private banking business. And this case shows that there are still a lot of unresolved issues from the past. And even though UBS agreed a settlement with Mozambique over Credit Suisse's involvement in the scandal,

That apparently hasn't drawn a line under this dispute. All of this is happening at a time when UBS is also facing broader regulatory pressure in Switzerland. So these include ongoing discussions around... capital requirements. So while UBS is very profitable, its share price is doing okay, it was only slightly down on the day, these legacy cases aren't helpful. Mercedes Rule covers Switzerland for the FT. Thanks, Mercedes. You're welcome.

Richard Hughes, the chair of the UK Office for Budget Responsibility, resigned yesterday. This comes after the UK fiscal watchdog accidentally leaked its analysis of Chancellor Rachel Reeve's budget before she delivered it. That caused sharp movements in bond markets. Now, this isn't an isolated incident.

An OBR report out yesterday said that the error that led to the leak was also to blame for early access to the spring statement in March. It found that the watchdog routinely uploaded its documents before publication time. and the OBR had wrongly assumed that it had configured its website to prevent early access.

The UK has been in a months-long battle with the pharmaceutical industry and the Trump administration over the amount the NHS is allowed to spend on medicine. The dispute has led to threats by pharmaceutical companies to pull investments in the UK. The Trump administration has said it would impose steep tariffs on drug imports. Now it seems like they've reached a deal. And I'm joined by the FT's Chris Smythe to discuss this. Hi, Chris. Hi. So what has the UK agreed to as part of this deal?

Well, effectively, the UK has agreed to pay more for medicines. They have agreed a change to the very complicated NHS value for money rules, which effectively means they're willing to pay 25% more for a new branded medicine.

So this is a big deal. It follows years of complaints from industry about the low prices paid by Britain compared to other countries, which Britain had largely been able to ignore previously because other companies ultimately... wanted to sell to Britain and felt they had no choice but to accept the price on offer.

But that has changed, of course, with the election of Donald Trump, who has made no secret of his dislike of freeloading Europeans, as he called them, and has threatened all kinds of things if companies continue to sell at lower prices. And that has concentrated minds and led to... this agreement. And what does the UK get in return here?

Well, it gets two things. The most obvious and immediate thing is it gets an exemption from the 100% tariffs on pharmaceutical imports, which Donald Trump had threatened to impose. So Britain will now be exempt from that. And I guess more broadly what... it gets is a sigh of relief from the pharmaceutical industry which had been pausing, cancelling, reviewing all kinds of investments.

in Britain and will now have a little bit more confidence about investing here. And the government will tout that as a big win. for the economy and try ultimately to say it will benefit British patients as well because they will get access to these new medicines. Chris, how much is this going to cost the UK?

Well, that is a subject of hot debate in government, but sources tell me that ultimately this will cost about £3 billion a year. Now, that's not all an immediate cost. It will build up to that. Over time, exactly how long? I think it's going to be a matter of debate, but somewhere between three and ten years.

But ultimately, there will be a difficulty here because there isn't really clarity over who is ultimately going to fund this. There is no increase immediately for the NHS budget to pay for this. But you'd imagine when it comes to future negotiations, particularly when we see Rachel Reeves, the Chancellor last week, likes using the NHS as a prop after budgets, there will be a lot of pressure for her to give the NHS even more money.

to effectively fund these high medicines costs. What impact do you think this deal will ultimately have on the UK drug industry? Well, I think it is fair to say that without this deal, there were some pretty dire warnings coming out from the industry about investment in the UK, their willingness to work here and support. a government strategy which puts a lot of weight on the life sciences sector as one of the key drivers.

of its industrial strategy. So I think the fact that the government has been willing to move on this is seen as a big win in the industry and it will give some companies confidence to invest. But I think there's a lot more... to do to convince them that Brin really is a place that wants to support that industry. But of course, if they do that, that comes at a price and that is something...

that many patients and Labour MPs particularly will not be terribly comfortable with the NHS paying. Chris Smyth is the FT's public policy editor. Thanks, Chris. Thank you for having me. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news. The latest episode of the Next 5 podcast is all about the energy transition.

I speak to Elizabeth Cremona at EMBA. It costs far more to not invest in your grid than to actually invest. Massimo Battaglini at Prismian. Data center in US requires significant investment for utilities. And Maria Mendolice at We Mean Business. Coalition. One trillion US dollars are spent in subsidising fossil fuels, benefiting the richest people and not the poorest. Listen to The Next Five wherever you get your podcasts. Enjoy.

Eight out of ten tech dollars in banking go to life support. Not innovation, not growth, just keeping the lights on. ThoughtWorks and AWS help banks switch the power back to progress. Modernizing legacy systems at pace without pulling the plug. The past had its time. Discover how to build the future