ZURICH Aug 22 Zuercher Kantonalbank (ZKB) said on Friday it had raised the risk provision that covers a tax probe by U.S. authorities as first-half profit fell at the Swiss bank.
Local government-owned ZKB is one of roughly a dozen Swiss banks being investigated by the U.S. Department of Justice on suspicion of helping wealthy Americans evade taxes, including Geneva-based Pictet & Cie, the Swiss arm of Israel's Leumi and Julius Baer.
The cantonal bank raised its risk provision in the first half of 2014 to 697 million Swiss francs ($765.43 million) from 688 million francs at the end of last year.
This provision includes the U.S. tax case, though ZKB said it does not give a detailed breakdown of the individual business risks. It did not provide an update on the state of the probe.
In May, Credit Suisse agreed to pay more than $2.5 billion in penalties as part of a similar investigation, which raised fears that the other banks under criminal investigation could face bigger fines than they bargained for.
ZKB's performance joined UBS and Credit Suisse in November on a list of Swiss banks whose stability is considered by the Swiss National Bank to be essential for the well-being of the country's financial system. As a result, it is required to meet tougher regulatory requirements.
The bank's capital ratio at the end of June was 15.9 percent of risk-weighted assets, exceeding the current regulatory requirement of 13.7 percent.
"Zuercher Kantonalbank is deliberately maintaining a high capital base and is prepared to accept a reduction in its return on equity," the bank said in a statement.
ZKB posted half-year profit of 336 million francs, 14.6 percent lower on the year. The ultra-low interest rate environment, coupled with mortgage growth of just 1 percent, meant interest income dropped more than 5 percent, the bank said.
The bank's bottom line was also hit by a near-25 percent slide in trading revenue, which the bank attributed to customer restraint due to low market volatility.
ZKB said its results for 2014 are likely to be lower than last year due to the challenging market environment, which is a reiteration of guidance from February. (1 US dollar = 0.9106 Swiss franc) (Reporting by Joshua Franklin; Editing by Michael Urquhart)