Credit Suisse Group AG Chief Executive Officer Brady Dougan said he doesn’t expect a guilty plea to a U.S. criminal charge will drive customers away from Switzerland’s second-biggest bank.
“All the discussions with clients have actually been very reassuring,” Dougan said on a call with analysts and reporters today. “We continue to be hopeful and encouraged that there will be very little impact on business as we go forward.”
The Zurich-based company agreed yesterday to the largest penalty in an offshore tax case, paying $2.6 billion, after using secret Swiss accounts to help Americans hide money from the Internal Revenue Service. Its main banking unit pled guilty to a criminal charge.
The firm did extensive work before the settlement and found no legal barriers that would prevent customers from doing business with the bank because of the guilty plea, Dougan said. Credit Suisse rose 1 percent to 26.32 Swiss francs in Zurich trading.
“It’s a relief,” said Andreas Nigg, the head of equity and commodity strategy at Vontobel Asset Management in Zurich. “It was a huge distraction for senior management. Being able to move on and getting back to business -- that’s key.”
Dougan said the settlement resolves the last major litigation issue for the bank, adding that Credit Suisse sees no risks tied to probes into benchmark lending rates and no “material” issues related to investigations into the alleged manipulation of currency markets.
The bank did not have to turn over the names of American clients as part of the settlement, though it pledged to help the U.S. request those names through a tax treaty with Switzerland. Asked if Credit Suisse expects the U.S. authorities to take action to try to get the bank to deliver client data, Dougan said the deal “brings all those issues” to a close.
Chief Financial Officer David Mathers said he doesn’t expect a material impact on the lender’s activities as a result of the settlement or the plea.
“As long as a guilty plea and the resulting reputational issues don’t have an effect on its ability to operate, it should be business as usual for Credit Suisse,” said Shailesh Raikundlia, an analyst at Espirito Santo Investment Bank in London, who has a neutral rating on the stock.
Dougan, a 54-year-old American who has led the bank for seven years, faced calls in recent days from Swiss politicians to step down over the case. He said today he’s “very committed” to Credit Suisse and has not considered resigning.
Chairman Urs Rohner told Swiss radio in an interview that the management has “a clean record” and takes responsibility for the case by sticking with the company through “this difficult phase.” Rohner, 54, a former general counsel at Credit Suisse, became non-executive chairman three years ago.
The bank will pay $1.8 billion to the U.S., which includes almost $670 million in restitution to the Internal Revenue Service. The penalty also involves a $715 million payment to New York’s Department of Financial Services and $100 million to the Federal Reserve.
Credit Suisse said yesterday that the penalty would cut into second-quarter earnings by 1.6 billion francs ($1.79 billion) though the bank doesn’t foresee the guilty plea having any impact on its licenses or business capabilities.
“Though the fine is towards the higher end of expectations, it is affordable,” said Neil Wilkinson, senior fund manager at Royal London Asset Management. “From a balance sheet perspective, management has indicated it will take action to strengthen its core tier 1 capital ratio to 10 percent by year-end, back to where it was before the fine.”
The cost of insuring Credit Suisse’s debt for five years fell 1 basis point to 64.8, according to data compiled by Bloomberg. That’s still below the level at the end of last year. A basis point is a hundredth of a percentage point.
To contain fallout from the Credit Suisse plea, prosecutors worked in concert with banking regulators, who moved to reassure some of the largest U.S. financial firms that Credit Suisse’s guilty plea won’t trigger a crisis, according to a person briefed on the conversations, who requested anonymity because the discussions are private.
The full impact of the plea may not be felt immediately, and early indications suggest that Credit Suisse’s counterparties won’t turn their backs on Switzerland’s second-biggest bank. Lloyd Blankfein, CEO of Goldman Sachs Group Inc., said on May 16 that “it becomes a very weighty decision for us to cut someone off, and we wouldn’t do it lightly.”
Some clients could react differently. New York Life Insurance Co., which manages more than $500 billion and is a client of Credit Suisse, will re-evaluate its relationship with the bank, said John Kim, the firm’s chief investment officer.
The insurer will seek to “determine whether there’s something sort of systematic to that institution that caused them to behave poorly on one side of their business, and whether that extends to the investment banking side,” Kim said in an interview.
U.S. Attorney General Eric Holder, who oversaw the deal, was seeking to blunt criticism from lawmakers that the Justice Department considered large banks immune from prosecution after the 2008 financial crisis because of their size and importance to the economy. Holder has been faulted for settlements that let banks escape criminal charges while paying fines, admitting wrongdoing and improving controls.
UBS AG, the largest Swiss bank, avoided prosecution in 2009 by paying $780 million and disclosing the names of 250 American clients. UBS later settled a U.S. lawsuit by revealing 4,450 more account holders.
“This case shows that no financial institution, no matter its size or global reach, is above the law,” Holder said at a press conference yesterday. “A company’s profitability or market share will never be used as a shield from prosecution or penalty. And this action should put that misguided notion definitively to rest.”