- Bank says it’s reached an agreement in principle with U.S.
- Tax investigation had hampered bank's ability to make deals
Julius Baer Group Ltd said it expects to pay about $547 million to settle a U.S. criminal investigation into how it helped Americans evade taxes, clearing the way for other Swiss banks to resolve similar probes.
The agreement in principle between Switzerland’s third-largest wealth manager and the U.S. Justice Department sets the penalty bar for about a dozen Swiss banks looking to resolve criminal probes of their conduct. Seventy-five other Swiss banks avoided prosecution this year by voluntarily disclosing how they helped Americans avoid taxes and paying a total of $1 billion in penalties.
Julius Baer disclosed the settlement in a statement on Wednesday, as it earmarked another $197 million beyond the $350 million it set aside in June to resolve the probe. The Zurich-based company said it expects to conclude the agreement of the four-year investigation in the first quarter.
Chief Executive Officer Boris Collardi had said he wanted to resolve the U.S. probe by the end of 2015. Uncertainty around the Justice Department investigation has hampered the company’s ability to make deals, invest in renewing outdated information-technology platforms and even return capital to shareholders. Julius Baer said in July it planned to outline a new capital-management plan in early 2016.
“Knowing the final amount gives us more clarity on Julius Baer’s excess capital and potential for acquisitions,” said Jonas Floriani, a London-based analyst at Keefe, Bruyette and Woods with an outperform rating on the shares. “Reaching an agreement should be taken as a positive, even though the amount is higher than the original provision.”
Julius Baer rose 3.1 percent in Zurich trading, bringing the gain for this year to 5.3 percent compared with a 3.5 percent decline in the Bloomberg Europe Banks and Financial Services Index.
Julius Baer has been negotiating a deferred-prosecution agreement to resolve the investigation, according to a person familiar with the matter who asked not to be identified because the talks aren’t public.
Under such an agreement, a company is typically charged with a crime that is later dismissed if the firm makes a payment, complies with specified conditions, and makes a detailed statement of facts about its wrongdoing.
Mark Abueg, a Justice Department spokesman declined to comment on the Julius Baer statement.
The bank reached a “comprehensive resolution regarding its legacy U.S. cross-border business” with prosecutors working for Manhattan U.S. Attorney Preet Bharara, according to the statement. In 2011, Bharara’s office indicted two Julius Baer bankers, accusing them of conspiring with more than 180 U.S. clients and others at the bank to hide at least $600 million in assets from the Internal Revenue Service.
The accord still needs final approval from the Justice Department, and it will be filed with “related resolution documents” with a federal judge in New York, according to the statement.
The announcement came as the Justice Department concludes a disclosure program in which 75 Swiss banks have avoided prosecutions. Lawyers defending banks have said the Justice Department wouldn’t resume the criminal cases until it completed the program.
About a dozen Swiss banks have been under U.S. criminal investigation since Switzerland’s largest lender, UBS Group AG, settled with the U.S. UBS agreed in 2009 to pay $780 million, while Credit Suisse Group AG, the No. 2 Swiss bank, paid $2.6 billion in 2014. Both admitted they helped Americans cheat the IRS.
Those still under investigation include the Swiss unit of HSBC Holdings Plc, Europe’s biggest bank.
“Julius Baer remains committed to cooperating proactively with the DOJ’s investigation,” the company said in the statement. Jan Vonder Muehll, a spokesman for the bank, declined to comment further by telephone.
Julius Baer, founded in 1890, has grown through acquisitions in the past six years under Collardi, including the 2012 purchase of Bank of America Corp.’s non-U.S. wealth units. The company managed 297 billion francs ($299 billion) for wealthy individuals and families at the end of October and reported a 78 percent decline in first-half profit in July, mainly due to the initial provision for the U.S. tax settlement.
The provision for the settlement will be included in its 2015 results, Julius Baer said. Even so, the bank expects to report a net profit for the year and remains “adequately capitalized,” with a BIS total capital ratio of 18.6 percent as per Oct. 31, 2015.
U.S. authorities have been aided in their investigations by 54,000 U.S. taxpayers who disclosed offshore accounts to the IRS since 2009, paying more than $8 billion in back taxes, penalties and interest, according to the Justice Department.
More than three dozen offshore bankers, lawyers and advisers have also been charged. They include Daniela Casadei and Fabio Frazzetto, the two Julius Baer bankers who were indicted in 2011. Casadei worked at the bank from the early 1990s and Frazzetto worked there from 2005, according to the indictment. Both advisers are charged with conspiracy and face as long as five years in prison.
Casadei and Frazzetto are still employed by Julius Baer in Switzerland, according to the company.