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Credit Suisse Said Talking to Finma on Legal Risks Capital

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Credit Suisse Said Talking to Finma on Capital for Legal Risks
A visitor is reflected in a window as he enters a Credit Suisse Group AG office in Zurich. Photographer: Gianluca Colla/Bloomberg

Credit Suisse Group AG, the second-largest Swiss bank, is in discussions with its regulator that may lead to a demand for more capital tied to litigation risks, a person with knowledge of the matter said.

Any order to increase capital would be much smaller in scope than a directive from the Swiss Financial Market Supervisory Authority that UBS AG disclosed at the end of October, said the person, who asked not to be identified because the matter isn’t public.

Credit Suisse has been in talks with Finma since early 2012 about the models it uses to measure operational risk, such as litigation and compliance. It’s already increased assets weighted for operational risks by 24 percent to 44.8 billion francs ($50.2 billion) through the end of September, company reports show. As risk-weighted assets rise, banks must hold additional capital to make sure reserves meet requirements.

Credit Suisse said in an e-mail today that it’s “constantly” reassessing how much capital it needs to hold against operating and other risks and is working closely with financial regulators, particularly Finma.

“Such changes occur frequently and are accommodated within our capital planning,” the bank said. “We do not anticipate variations in the amount of capital assessed against all these risks to be out of the normal range of variation that we see from quarter to quarter.”

An official for the regulator declined to comment on Credit Suisse.

UBS Announcement

UBS, the largest Swiss bank, said in October it was ordered to boost risk-weighted assets for legal and other operational matters by 50 percent, or about 28 billion francs. That lowered the company’s common equity ratio under Basel III standards by 1.3 percentage points and forced it to delay a profitability goal. Since the announcement on Oct. 29, UBS shares have fallen 13 percent.

Regulators are toughening requirements after Europe’s biggest banks racked up more than $77 billion in legal costs since the financial crisis, five times their combined profit last year, data compiled by Bloomberg show. Operational risks reflect potential losses resulting from inadequate or failed internal processes, people and systems, or from external events.

Probing Models

Credit Suisse increased its operational risk capital by 4 percent in the third quarter, after raising it by 20 percent last year, to reflect expected effects from the review of its model, it said in its quarterly report. The review is scheduled to be completed this year.

UBS’s operational risk-weighted assets fell to 55.3 billion francs by Sept. 30 from 58.9 billion francs at the end of 2011, when they rose in the wake of a $2.3 billion loss from unauthorized trading, company reports show.

UBS said in October that the regulator’s decision was based on a comparison of recent loss history with the capital underpinning operational risks. Finma will review the situation periodically, considering provisions that the bank has made and developments in relevant legal matters, the bank said.

Finma is among regulators probing banks for potential manipulation of currency markets. UBS said in October it’s among financial institutions that received requests for information from authorities investigating the matter.

Examining the bank’s internal models is one of Finma’s core tasks and the regulator can impose surcharges if results from the models don’t correspond to a conservative assessment of potential risks or empirical evidence, Tobias Lux, a spokesman for the watchdog, said in October.

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