May 30 (Bloomberg) -- UBS AG, the Swiss bank reeling from the fallout of the U.S. subprime crisis, may face more client defections and diminished investor confidence after a former banker decided to cooperate in a growing U.S. tax-evasion probe.

Bradley Birkenfeld, who worked in UBS's private banking unit, agreed to plead guilty to helping a billionaire avoid paying taxes on $200 million, according to a filing in federal court in Fort Lauderdale yesterday.

The plea will probably accelerate a U.S. probe of UBS, the world's biggest money manager for wealthy individuals, as it tries to stem client withdrawals and raise 16 billion Swiss francs ($15.2 billion) to replenish capital after $38 billion in writedowns tied to the U.S. subprime crisis.

The investigation could have ``a very serious impact on their earnings when they probably could use every nickel they can get,'' said Charles Geisst, a finance professor at Manhattan College in New York and author of ``100 Years on Wall Street.'' ``When something like this occurs, it's a very black mark.''

UBS disclosed earlier this month that the Justice Department inquiry focused on whether the bank helped wealthy Americans conceal income. The Securities and Exchange Commission is also investigating the bank. Doug Morris, a UBS spokesman in New York, declined to comment on any possible impact from Birkenfeld's plea.

Hurting

``The continued series of hits to the firm's formerly sterling reputation continue to hurt,'' said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York. ``You can't put a number on that, but that's a reality.''

The bank still has more than $45 billion in U.S. mortgage- related assets, $8.6 billion in leveraged-finance commitments and $10.4 billion in U.S. student loans on its books.

Outflows at the global wealth management and business banking unit totaled 3.7 billion francs in the first quarter, compared with the 33.9 billion-franc average quarterly inflow of the past two years.

``I wouldn't expect any improvement in money inflows from international clients'' in the second quarter, said Madeleine Hofmann, a Zurich-based analyst at Julius Baer Holding AG. She forecasts zero inflows from Swiss clients.

UBS fell 68 centimes, or 2.6 percent, to 25.1 francs in Zurich trading today, extending losses over the past 12 months to 64 percent.

`Full Confession'

Birkenfeld's case sheds light on how he helped UBS clients allegedly evade U.S. taxes. In yesterday's court filing, Birkenfeld, 43, was told that the presiding judge expects him to offer a ``full confession'' at his June 9 plea hearing.

The ex-UBS private banker was indicted along with Mario Staggl, also 43, who is now a fugitive. They were accused of attempting to sidestep rules in a U.S.-Switzerland tax treaty that requires information to be exchanged on some financial transactions.

Court papers accuse Staggl, Birkenfeld and unidentified others of establishing shell companies to help U.S. bank-account owners conceal their identities and advising customers to destroy offshore banking records that existed in the U.S. The two also helped clients prepare false and fraudulent tax returns, the government alleges.

UBS, in a statement, said it's cooperating with the federal probes.

The bank is ``treating these investigations with the utmost seriousness and has committed substantial resources to cooperate with both investigations,'' UBS said. ``UBS intends to appropriately and responsibly address and correct any issues raised in the investigation.''

Danny Onorato, Birkenfeld's attorney in Washington, declined to comment, as did Alicia Valle, a spokeswoman for the Justice Department in Florida.

Birkenfeld's Client

Birkenfeld's client has been identified as Igor Olenicoff, the billionaire founder of Olen Properties Corp. He pleaded guilty in December to a charge of filing a false tax return and agreed to pay $52 million in back taxes, penalties and interest.

Olenicoff said he got ``bad advice'' from financial professionals, according to a transcript of his April 14 sentencing for lying on tax returns. He was sentenced to two years of probation, 120 hours of community service and a $3,500 fine.

Olenicoff had a UBS account in Switzerland and a Bank Neue account in Liechtenstein, according to his plea agreement with U.S. prosecutors. He also said he had a Barclays Bank account in the Bahamas and Salomon Smith Barney ``financial accounts'' in London.

Olenicoff said in his plea agreement in a California federal court that he falsely denied in U.S. tax returns from 1998 through 2004 that he controlled any foreign bank accounts.

Birkenfeld worked at UBS from 2001 to 2006 in Switzerland, according to court papers. Staggl is a co-founder of New Haven Trust Company Ltd. in Liechtenstein.

The case is U.S. v. Bradley Birkenfeld and Mario Staggl, 08-60099, U.S. District Court for the Southern District of Florida, Fort Lauderdale.

To contact the reporters on this story: Robert Schmidt in Washington at Rschmidt5@bloomberg.netJosh Fineman in New York at jfineman@bloomberg.net

Last Updated: May 30, 2008 18:01 EDT