Swiss banks risk bigger than expected fines in U.S. tax case

Fri May 30, 2014 11:56am EDT
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By Joshua Franklin and Patrick Temple-West

ZURICH/WASHINGTON (Reuters) - 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 calculations.

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.   Continued...

The entrance to a Credit Suisse branch is seen in New York February 6, 2012.   REUTERS/Shannon Stapleton