July 1 (Bloomberg) -- UBS AG, the biggest wealth manager, fell to the lowest level in almost a decade in Swiss trading after U.S. prosecutors sought the authority to force the bank to reveal names of American clients with secret accounts.

UBS dropped 1.14 Swiss francs, or 5.3 percent, to 20.30 francs. The shares fell as low as 19.81 francs, not far from the all-time low of 19.03 francs on Oct. 2, 1998, three months after the bank was formed through the merger of Swiss Bank Corp. and Union Bank of Switzerland.

Prosecutors yesterday asked a Miami federal judge to let the Internal Revenue Service issue a summons to Zurich-based UBS for client information as part of an investigation into whether the Swiss bank helped affluent customers evade American taxes. The U.S. probe is intensifying at the same time the bank is reeling from record losses on subprime-infected assets.

``God knows what damage the tax probe will cause, and morale within the bank must be at a record low,'' said Rolf Biland, who oversees about $4.1 billion as Zurich-based chief investment officer at VZ Vermoegenszentrum.

The bank will probably post a loss for the second quarter after writedowns on real estate securities, analysts including Stalmann have forecast. The bank may report markdowns of about 5 billion francs ($4.9 billion) for the second quarter, according to the median estimate of six analysts, following more than $38 billion of writedowns in the previous three quarters.

`Core Franchise'

UBS led a decline in financial shares across Europe, with asset managers among the worst hit. Julius Baer Holding AG, Switzerland's biggest independent wealth manager, dropped as much as 8.3 percent, while Schroders Plc sank as much as 7.3 percent in London trading. The 59-company Bloomberg Europe Banks and Financial Services Index declined 3.7 percent.

UBS Chairman Peter Kurer, who replaced Marcel Ospel in April, told shareholders at the annual meeting that month he will lead a strategic review of all of the bank's businesses to make them better complement the wealth management unit, which he called UBS's ``core franchise.''

The bank said today that it plans to inform shareholders about results of the review at an extraordinary shareholders meeting on Oct. 2. The meeting was called to elect four new board members, as Kurer seeks to increase the level of financial expertise on the board after criticism from shareholders including former UBS President Luqman Arnold.

Shareholders' Meeting

Arnold's Olivant Advisers Ltd., which holds a 2.5 percent stake in the bank, said in a statement today that it welcomed the changes in corporate governance at UBS.

UBS shares sank 69 percent in the past year, cutting the bank's market value to 58.7 billion francs.

``They are addressing the problems but the market would like to see things move more swiftly,'' said Biland.

The Miami judge is likely to grant the so-called ``John Doe'' summons, said Jack Blum, a partner at Baker & Hostetler LLP and an expert on offshore banking. UBS may have little choice but to comply, he said, because the Swiss government appears to be cooperating. The summons would be the first by the U.S. against a foreign bank.

``The bank is in a very difficult position,'' Blum said. ``If I were advising clients, I'd tell them to come clean; the people who come clean early will probably be allowed to get off with paying the tax, the interest and the penalties. Others could very easily face criminal prosecution.''

Birkenfeld Case

A partial amnesty in 2003 followed an investigation into debit and credit cards linked to offshore accounts that included the issuance of John Doe summonses to Visa International Inc. and American Express Co. The amnesty yielded $170 million in taxes, interest and penalties from 1,300 people.

John DiCicco, deputy assistant attorney general in the Justice Department's tax division, said in a statement that the U.S. has been ``working cooperatively'' with UBS and the Swiss government to obtain the account information.

``However, we are prepared to seek enforcement if that process is not successful,'' DiCicco said.

UBS spokeswoman Rohini Pragasam in New York said the bank ``takes this matter very seriously and is working diligently with both Swiss and U.S. government authorities.''

The IRS uses ``John Doe'' summonses when it is investigating possible tax fraud by people whose identities are unknown. The summons would direct UBS to produce records identifying U.S. taxpayers who had accounts with the bank in Switzerland between 2002 and 2007, and who had their accounts hidden from the IRS.

Bradley Birkenfeld, a former UBS banker, pleaded guilty June 20 that he and his colleagues helped wealthy Americans hide money by telling them to put cash and jewelry in Swiss safety deposit boxes, buy artwork and jewels using offshore accounts and set up accounts in the names of others.

In court filings yesterday, Internal Revenue Service agent Daniel Reeves said that in an Oct. 12 interview, Birkenfeld said he was one of 40 to 50 UBS private bankers who made quarterly trips to the United States to manage customers.

To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net

Last Updated: July 1, 2008 11:58 EDT