May 21, 2014 / 1:55 PM / in 4 years

Fitch: Credit Suisse Settlement Sets Precedent for Others

(The following statement was released by the rating agency) LONDON/NEW YORK, May 21 (Fitch) Credit Suisse's settlement with US authorities, involving a large fine and a guilty plea at the main banking subsidiary but no licence withdrawals, is likely to set a precedent for BNP Paribas and other banks involved in high-profile investigations in the US, Fitch Ratings says. We do not expect any settlements and guilty pleas to significantly disrupt large global banks' operations, as the authorities want to maintain financial stability. But uncertainty remains about whether some clients and counterparties may terminate relationships with banks that plead guilty. BNPP's case concerns US dollar payments involving countries subject to US sanctions. This investigation has been ongoing for some time, although the finalisation of details on the specific transactions has been more recent. We expect BNPP's fine to be high, potentially larger than at Credit Suisse, as the level of fines imposed on banks by the US authorities, including the Department of Justice, has been rising. BNPP's 1Q14 disclosure stated that the fine could be far greater than the legal provision made. The bank recorded a provision of USD1.1bn in its 4Q13 financial statements following an internal review, which identified a significant volume of dollar transactions that could be considered impermissible under US regulations, even though they were not prohibited by the jurisdictions of the group entities that initiated them. This is higher than Standard Chartered's USD667m settlement with various US regulators on sanctions violations in 2012, but lower than HSBC's USD1.9bn settlement in relation to the five-year deferred prosecution agreement it entered into at end-2012, which only partly related to inadequate compliance with sanctions laws. We believe that a guilty plea by BNPP or one of its subsidiaries is likely after the precedent set by Credit Suisse. US Attorney-General Eric Holder has indicated a greater willingness to pursue criminal charges against large banks the DOJ believes have violated the law. But we believe such a plea would be likely to follow discussions with relevant authorities so that it would not result in licence withdrawals or requirement to curtail existing business, similar to the outcome at Credit Suisse. We believe BNPP would either be able to absorb any fine amount above the provision through earnings, or take actions to support capitalisation should capital generation in relation to earnings be notably dented. We would consider reviewing the ratings, and potentially downgrade BNPP's 'a+' Viability Rating (VR) should the outcome be different from our assumptions regarding licences or if capital ratios were dented without clear plans to restore them swiftly. The VR would also come under pressure should customer reaction to a plea damage the business. BNPP's 'A+' Issuer Default Rating would also be downgraded if the VR were downgraded because its VR is above its Support Rating Floor. BNPP's US operations include its New York branch and its SEC-registered broker dealer. Unlike Credit Suisse, BNPP also has significant retail and corporate banking business in the US through BancWest Corporation, which has two state chartered bank subsidiaries - Bank of the West and First Hawaiian Bank. Credit Suisse's settlement is also likely to set a precedent for other firms, including US banks, that are undergoing various investigations by US authorities, including sanctions violations, tax evasion, LIBOR fixing, FX trading and commodities dealing. Contact: Christian Scarafia Senior Director Financial Institutions +44 20 3530 1012 Alain Branchey Senior Director Financial Institutions +33 1 4429 9141 Cynthia Chan Senior Director Fitch Wire +44 20 3530 1655 London E14 5GN Bridget Gandy Managing Director +44 20 3530 1095 Joo-Yung Lee Managing Director +1 212 908 0560 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email:; Hannah Huntly, London, Tel: +44 20 3530 1153, Email:; John Ochoa, Bogota, Tel: +57 1 326 9999, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: Peer Review: Global Trading and Universal Banks here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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