(Repeats story with no change to text)
By Joshua Franklin and Patrick Temple-West
ZURICH/WASHINGTON May 30 Swiss banks under
investigation for allegedly aiding U.S. tax evasion face the
prospect of bigger fines than they bargained for that could dent
their capital and force some to cut dividends.
The Alpine nation's bankers got a jolt last week after
Credit Suisse agreed to plead guilty to helping
wealthy Americans evade taxes and pay a fine of $2.6 billion,
more than double the amount it had set aside for the purpose.
Thirteen other private banks were left scrambling to
calculate the possible fallout on their own finances of harsher
than expected penalties following the three-year investigation
by the U.S. Department of Justice (DOJ).
The exact size of their U.S. operations is not publicly
known and some are clearly much smaller than others, making it
difficult to use the Credit Suisse fine as a gauge for the
others caught in the probe.
But the uncertain outcome of the investigation and the lack
of detail on how the Credit Suisse penalty was calculated has
left analysts with little option but to bump up their most
pessimistic estimates for future fines.
Even a penalty exceeding what they have set aside by $200
million would have wiped out about 40 percent of the collective
2013 profits of the three smaller Swiss banks known to be
targeted by the probe who publish accounts, according to Reuters
The banks all boast capital ratios well above regulatory
minimums, but these ratios would fall by between 0.3 and 2.6
percentage points in the event they were each fined $200 million
more than their current provisions, the calculations suggest.
Not all the names of the banks being investigated have been
made public but they include Julius Baer, Basler
Kantonalbank, Zuercher Kantonalbank (ZKB) and Swiss
arms of Lichtenstein's LLB and the UK's HSBC.
Wegelin & Co, the oldest Swiss private bank, said in January
last year it would shut its doors permanently after more than
two and a half centuries following a guilty plea to charges of
helping wealthy Americans evade taxes through secret accounts.
Swiss private bank Frey & Co said it would close in October,
citing "unsustainable costs" stemming from the tax evasion
dispute with the United States.
Zurich-based Julius Baer is the second-largest Swiss bank to
face DOJ scrutiny. In the days after the Credit Suisse
settlement was announced, its shares fell to their lowest since
early April before recovering this week.
"Before, the consensus (for a possible Julius Bear fine) was
between 300 million and 500 million Swiss francs ($336-559
million) at the most," said Andreas Brun, an analyst at ZKB.
"Now there are some analysts who even say it could be over a
billion. It's just because there was a negative surprise at
Julius Baer has distanced itself from the Credit Suisse
outcome, saying the two cases cannot be compared.
Last year it budgeted 15 million francs for legal fees
relating to the U.S. tax evasion case, and has said it did not
make a provision for a fine as it could not adequately estimate
the ultimate amount.
Fund managers and analysts said a fine in excess of $1
billion could be more than the bank can cover without having to
cut dividends or tap investors for cash. It made a net profit of
about $210 million last year.
"What they can save by completely cutting the dividend is
not really moving the needle," said MainFirst analyst Kilian
Maier, who said a fine for Julius Baer could be around $555
million, but may well be higher.
"If you think it will affect the dividend, the next question
will be: will they need a capital increase?"
COOPERATION IS KEY
ZKB has not publicly disclosed any amount set aside for
possible fines and legal fees in the tax case. LLB said it had
made legal provisions of around 27 million francs across three
companies including LLB Switzerland.
HSBC declined to comment.
Basler Kantonalbank took a 100 million Swiss franc ($112
million) provision against earnings last year to cover legal
costs and fines from the U.S. crackdown.
It welcomed Credit Suisse's settlement.
"It's a sign for the ... banks (in the probe) that they can
close their cases," Basler Kantonalbank Chief Executive Guy
Lachappelle told Reuters. "But the cases are not comparable."
A lawyer representing some of the Swiss banks said some were
negotiating fines with the DOJ but were waiting to see how the
Credit Suisse settlement concludes.
Regarding the timing of any finalised settlements, "it's all
over the map," the lawyer said, declining to be named because
the talks are under way.
Switzerland's Finance Minister Eveline Widmer-Schlumpf said
last week she hoped the remaining banks would conclude their
negotiations with U.S. authorities in the next few months.
She too insisted the Credit Suisse settlement was not a
template for future fines.
"It depends on the individual case," Widmer-Schlumpf said at
a news conference in Berne. "In particular, it depends on the
size of the offence and how well the bank has cooperated."
The DOJ last week slammed what it perceived as Credit
Suisse's lack of cooperation, adding that this counted against
the bank in the final settlement - and implying a different
outcome for banks that do work with the department.
"Credit Suisse's lack of effective cooperation was an
important additional factor in determining the resolution of the
case," U.S. Deputy Attorney General James Cole said on May 21 in
a talk at the University of Texas School of Law. "Put simply,
($1 = 0.8940 Swiss Francs)
(Additional reporting by Rupert Pretterklieber and Oliver Hirt
in Zurich; editing by Laura Noonan and Tom Pfeiffer)