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 The bank's guilty plea resolves its long-running dispute with the
United States over tax evasion, but could have implications for the
clients and counterparties that do business with the group.
Credit Suisse said it had not seen a material impact in the past few
weeks on its business, and that clients faced no legal obstacles
from doing business with it despite the guilty plea.
Switzerland's second largest bank escaped what could have been the
worst outcome for its business - its top management stayed in place
and it will not have to hand over client data, protected by Swiss
secrecy laws. And the New York state bank regulator decided not to
revoke the bank's license in the state.
U.S. prosecutors said the bank helped clients deceive U.S. tax
authorities by concealing assets in illegal, undeclared bank
accounts, in a conspiracy that spanned decades, and in one case
began more than a century ago.
"This case shows that no financial institution, no matter its size
or global reach, is above the law," Attorney General Eric Holder
said at a news conference in Washington.
"We deeply regret the past misconduct that led to this settlement,"
Credit Suisse CEO Brady Dougan said on Tuesday.
The Justice Department has not often pursued such convictions of
financial companies, especially large ones that could become
destabilized following an indictment. But U.S. politicians have
pushed for tougher punishment for big banks in response to the
2007-2009 financial crisis.
Credit Suisse will pay the penalties to the U.S. Department of
Justice, the Internal Revenue Service, the Federal Reserve and New
York's banking regulator, the New York State Department of Financial
Services. It had already paid just under $200 million to the
Securities and Exchange Commission.
Switzerland's left-wing Social Democrats renewed a call first made
last week for Dougan and other executives to step down to allow the
bank to make a fresh start.
Asked whether he had considered such a move, Dougan, a 24-year
veteran of the bank who took over as CEO in 2007, said resignation
had "never been a consideration" and he remained committed to the
bank.
New York bank regulators discussed replacing Dougan and others, a
source familiar with the negotiations said. But in the end, the
option was not made a condition of the deal.
The Swiss government said its main concern was that Credit Suisse
was managed well and could move on, and that any change in
leadership "wasn't the concern of politics."
The bank's chairman, Urs Rohner, told Swiss radio on Tuesday that he
and CEO Dougan personally had a clean record, but the same could not
be said for the bank's behavior in past decades.
Switzerland's regulator effectively cleared the two, saying it had
found no evidence that Credit Suisse top management knew of specific
misconduct.
APPEASING INVESTORS
Credit Suisse will take an after-tax charge of 1.6 billion Swiss
francs ($1.79 billion) in the second quarter for the fine, which
dwarfs a $780 million penalty Swiss rival paid to settle a U.S. tax
dispute in 2009.
To appease investors, the bank will begin paying out roughly half
its profits to shareholders once it hits a key capital ratio. It
will also reduce assets, sell real estate and take other actions to
help to meet the 10 percent capital ratio, which it expects to
achieve by year-end.
Credit Suisse shares were up 2.2 percent by 5:17 ET (0917 GMT),
outpacing a 0.6 percent firmer European banking sector.
"We see the size of the fine as affordable given the high ROE
(return on equity) of Credit Suisse's businesses," Nomura analyst
Jon Peace said. Peace, who rates the stock as a "buy", said the
payout guidance gave the bank a yield premium compared to the
sector.
But some analysts said clients and counterparties could pull their
business due to the guilty plea.
"While we expect that this event has been well-flagged and the
impact likely to be muted, there is always the small risk of
unintended consequences," Citigroup analysts Kinner Lakhani and
Nicholas Herman wrote in a note to investors.
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HAND-DELIVERED CASH
The United States has been trying to wrest client data from Swiss
banks in a long-standing fight with Switzerland and its bank secrecy
laws. The standoff has already forced Wegelin & Co, the oldest Swiss
private bank, to close shop after a guilty plea to charges of
helping U.S. clients evade taxes.
Credit Suisse, which has a large business managing wealthy clients'
money, helped them withdraw funds from their undeclared accounts by
either providing hand-delivered cash to the United States or using
Credit Suisse's correspondent bank accounts in the United States,
the Justice Department said.
Prosecutors said Credit Suisse had around 22,000 U.S. client
accounts worth around $10 billion, which included both declared and
undeclared accounts, although the bank will not hand over any data
of its American clients as part of the deal.
Bank account data, protected by Swiss secrecy laws, has proven a
sticking point in the Credit Suisse probe and in the wider U.S.
crackdown on the industry.
Credit Suisse's plea raises questions about roughly a dozen other
Swiss banks including Julius Baer and Bank Pictet & Cie, also under
criminal investigation in the U.S.
On Tuesday, Swiss finance minister Eveline Widmer-Schlumpf said
there were no metrics to determine potential fines or other measures
for those banks, but she expected their settlement talks to be
resolved in coming months.
Credit Suisse pleaded guilty not only because of its complicity in
tax evasion, but also because of its poor cooperation in the
investigation, prosecutors said. It did not begin an internal probe
until early 2011, and did not preserve some evidence of the
wrongdoing, documents showed.
New York's banking regulator said it would place a monitor of its
choosing inside Credit Suisse, while the Fed said it was
investigating whether other individuals should be subject to actions
such as fines or bans. It did not name the individuals.
The last major international bank to plead guilty was France's
Credit Lyonnais, which admitted in 2004 to lying to U.S. regulators
about its role in the takeover of a failed California insurer. The
bank was acquired in the year before the agreement by bigger rival
Credit Agricole.
Mary Jo White, chair of the U.S. Securities and Exchange Commission,
on Monday said no bank was immune from criminal charges. Holder has
expressed a similar view, saying prosecutors are working closely
with other regulators to address potential consequences before
taking action.
Still, negotiations overall had not gone well for Credit Suisse, a
source familiar with the situation said.
Credit Suisse's legal team had initially tried to keep the fine
below $600 million or $800 million, but the numbers quickly
outstripped that target, this source said.
(Reporting by Aruna Viswanatha in Washington, Karen Freifeld in New
York, Katharina Bart and Oliver Hirt in Zurich, Joshua Franklin,
Paul Arnold and Ruben Sprich in Bern; Additional reporting by Dan
Wilchins and Richard Leong in New York and Douwe Miedema in
Washington; Writing by Douwe Miedema; Editing by Jane Merriman)
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