Credit Suisse Deal Seen Paving Way for Swiss Banks to Settle

May 21, 2014 10:04 am ET

(Updates with share prices in paragraphs 6-10, details on Julius Baer U.S. client assets in 8th paragraph; HSBC provisions)

May 21 (Bloomberg) -- Credit Suisse Group AG’s $2.6 billion in penalties for helping Americans dodge taxes clears the way for other Swiss banks to resolve their own quarrels with the U.S., ending years of deadlock and uncertainty.

The settlement provides “breathing space” for cutting deals, Swiss Finance Minister Eveline Widmer-Schlumpf told reporters in Bern yesterday. “We assume that a solution for the other banks can be found within the next few months.”

While investors might welcome the settlements in some cases, recent history shows that big fines and guilty pleas could mean a death sentence in others.

Credit Suisse’s main bank subsidiary agreed to the record penalty for an offshore tax case and on May 19 became the first global bank in a decade to admit to a crime in a U.S. courtroom. The Department of Justice reached the deal after years investigating more than a dozen Swiss firms, including Julius Baer Group Ltd., the nation’s third-largest wealth manager. Many of the companies are close to settlements, said Andreas Brun, an analyst with Zuercher Kantonalbank in Zurich.

“I expect resolutions in the next couple of weeks,” he said.

Credit Suisse’s stock jumped as much as 3 percent yesterday as Chief Executive Officer Brady Dougan, 54, told analysts and reporters he doesn’t expect the conviction will drive away customers. The shares were up 1 percent at the close of trading yesterday and were up 0.2 percent at 26.36 Swiss francs at 3:04 p.m. in Zurich today.

The lender, Switzerland’s second-biggest, kept its New York State license and doesn’t have to disclose information about U.S. clients in a way that might contravene Swiss financial secrecy laws.

‘Speedy Resolution’

Julius Baer, which had 264 billion francs ($296 billion) of client assets worldwide at the end of April, may achieve a better deal than Credit Suisse as it has no business operations in the U.S.

“I can now see Julius Baer settling rapidly as well,” said Alevizos Alevizakos, a London-based analyst with Mediobanca SpA. In this bank’s case, four analysts polled by Bloomberg News estimated fines ranging from 400 million francs to 2 billion francs.

Julius Baer dropped 0.8 percent to 39.4 francs as of 3:21 p.m. in Zurich today, extending the stock’s decline this year to 9 percent.

“Removing the overhang of these tax disputes will be beneficial for any Category 1 bank,” Alevizakos said, using a Justice Department term for Swiss banks under investigation before it opened a voluntary disclosure program. “A speedy resolution in the coming weeks or months would be marginally positive for Julius Baer.”

Wine, Canapes

Julius Baer CEO Boris Collardi, 39, said in February that the firm is looking to reach a settlement this year with the Justice Department. Assets managed for Americans were a “single-digit number” in the bank’s asset base, the CEO told investors in 2012, after the cross-border U.S. business was closed.

“There is no reliable basis for making provisions” for a potential fine, Jan Vonder Muehll, a company spokesman, said yesterday.

Patrick Humphris, a spokesman for HSBC Holdings Plc’s private bank, wouldn’t comment on settlement talks. In February the London-based lender reported regulatory provisions of $352 million at its private-banking unit, without saying why the money was set aside. While the terms on which the probe will be resolved are uncertain, it’s “possible that fines and/or penalties could be significant,” HSBC said.

Spokesmen for Zuercher Kantonalbank and Basler Kantonalbank, which has set aside 100 million francs to cover potential fines, also wouldn’t discuss the status of the investigations. Other Category 1 banks include Pictet & Cie. Group SCA and Neue Privat Bank AG.

The Credit Suisse deal was discussed over wine and canapes at an evening reception yesterday for hundreds of bankers hosted by the Geneva Financial Center lobby group.

“The regularization of the past, in particular with the U.S., will continue to take up our time,” Nicolas Pictet, president of the group, told bankers attending the meeting at the Hotel President Wilson, named after the 28th U.S. president. “We hope it will be resolved swiftly.”

UBS Agreement

Pictet, who is also a managing partner at his family’s bank, declined to comment on the Credit Suisse deal or any matters relating to the firm.

Neue Privat Bank expects to reach a “reasonable solution” with the Justice Department, according to Andreas Hildenbrand, a spokesman for the firm. “With Credit Suisse having been settled, we all think that this will now accelerate the process for all the others.”

The U.S. widened its investigation of Swiss banks after reaching a deferred-prosecution agreement with UBS AG, the country’s largest lender, which paid $780 million in a settlement in 2009. More than 100 other Swiss banks have averted probes by agreeing to disclose information on U.S. accounts in exchange for a promise of deferred prosecution.

Political Overtones

Negotiations with these Category 2 banks are “on track,” Jacques de Watteville, Swiss state secretary for international financial matters, said yesterday. The category includes banks that applied for non-prosecution agreements under the Justice Department program.

Banks in both categories will probably face severe financial penalties, Martin Naville, head of the Swiss-American Chamber of Commerce in Zurich, said in an e-mailed statement.

Arno Endres, an analyst with Luzerner Kantonalbank, described Credit Suisse as a special case, one with political overtones. He said he doubts the deal will inspire similar settlements any time soon.

“There will be other forms of resolution,” he said. “My guess is this will take more time.”

Banks are cooperating after a Justice Department probe forced Wegelin & Co., the Swiss bank established in 1741, to plead guilty to helping U.S. taxpayers hide assets in January 2013 and close its doors to clients. Bank Frey & Co., based in Zurich, renounced its banking license last year.

Liechtensteinische Landesbank AG, the oldest bank in the Alpine principality of Liechtenstein, avoided prosecution by paying a fine and after that country amended its law to allow the transfer of files on secret accounts. The bank closed its Swiss unit at the end of 2013.

A fine that exceeds 600 million francs would cause “severe problems” for Julius Baer and the bank may have to pay in installments or raise more capital if it’s higher, said Dirk Becker, an analyst for Kepler Cheuvreux in Frankfurt.

Julius Baer placed 350 million francs of subordinated, unsecured debt with private and institutional investors, according to a statement late yesterday. That was a “technical” measure to comply with rules on capital requirements and not connected to acquisition activity or other spending needs, said Vonder Muehll, the spokesman.

--With assistance from Jan Schwalbe and Jeffrey Vögeli in Zurich.