Updated Friday, August 1, 2014 as of 10:30 PM ET
Practice - Regulatory/Compliance
Credit Suisse Tax-Evasion Plea Looms
by: David Voreacos and Hugh Son
Monday, May 19, 2014
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(Bloomberg) -- With Credit Suisse Group AG poised to become the first bank in more than a decade to admit to a crime in the U.S., regulators have been reaching out to some of the firm’s biggest business partners to avert a panic, according to a person briefed on those communications.

The bank reached a deal to plead guilty as early as today to resolve claims it helped Americans evade taxes and will pay about $2.5 billion to the Justice Department and regulators, said a person familiar with the matter, requesting anonymity because the details aren’t public. Chief Executive Officer Brady Dougan and Chairman Urs Rohner may step down, SonntagsZeitung reported May 17, without saying how it got the information.

Switzerland’s second-biggest bank will be allowed to continue operating in the U.S., two people familiar with the matter said. In their outreach ahead of the expected guilty plea, regulators reassured some of the largest U.S. financial firms that the current situation wouldn’t become a repeat of the crisis that followed the 2008 collapse of Lehman Brothers Holdings Inc., the person briefed on the conversations said.

“It becomes a very weighty decision for us to cut someone off, and we wouldn’t do it lightly,” Goldman Sachs Group Inc. CEO Lloyd C. Blankfein, 59, said in a May 16 interview after his New York-based firm’s annual meeting in Irving, Texas.

Customer Flight

Credit Suisse fell as much as 2.3 percent and was down 0.9 percent at 25.96 francs at 1:20 p.m. in Swiss trading. The stock is down 7 percent so far this month, compared with a 2.6 percent decline in the 43-company Bloomberg Europe Banks and Financial Services Index.

The biggest challenge facing Credit Suisse could be that some of its own clients, such as pension funds, have internal requirements that prohibit them from doing business with an entity that has pleaded guilty to a crime, one person said. Customer flight could hurt the bank’s credit ratings, boosting the firm’s borrowing costs. Representatives of two of the largest U.S. banks said the firms intend to continue their trading and banking relationships with Credit Suisse.

Dougan, 54, the first American to serve as sole CEO of Credit Suisse, is one of the few leaders of a global bank to have endured the financial crisis and the scandals that followed. A 24-year veteran of the firm, Dougan became CEO in May 2007 after heading the company’s investment bank. Rohner, 54, a former general counsel at Credit Suisse, became non- executive chairman three years ago.

Rohner’s resignation letter is being drafted, according to SonntagsZeitung. Tages-Anzeiger, another Swiss newspaper, reported over the weekend that “signs are mounting” that Dougan will be replaced.

‘Safe’ Hands

“Clearly the excitement around Brady is building up to something of a fever pitch,” said Christopher Wheeler, an analyst at Mediobanca SpA in London with an outperform rating on Zurich-based Credit Suisse. “If he does leave the bank that would not be good news because people see him as a pretty safe pair of hands.”

The bank would pay almost $1.8 billion to the Justice Department, more than $600 million to the New York Department of Financial Services, led by Superintendent Benjamin Lawsky, and $100 million to the Federal Reserve, the people said.

Calvin Mitchell, a Credit Suisse spokesman, the Justice Department’s Brian Fallon and Barbara Hagenbaugh at the Fed all declined to comment. Matthew Anderson, a spokesman for Lawsky, didn’t respond to a phone message seeking comment.

Under terms of the agreement, Credit Suisse’s parent company would plead guilty to a conspiracy charge in federal court in Alexandria, Virginia, the people said. Seven of the bank’s executives were indicted in 2011 in that court.

False Statements

A guilty plea by a bank’s parent company would be the first since Credit Lyonnais SA, which admitted in January 2004 it made false statements to the Fed.

Credit Suisse will admit to a statement of facts that shows the U.S. tax evasion was widely fostered by the bank, the people said. The firm won’t have to disclose the names of U.S. account holders under terms of the agreement, one person said.

The Swiss government won’t resort to emergency laws to help Credit Suisse, Schweiz am Sonntag reported yesterday, citing comments by Swiss Finance Minister Eveline Widmer-Schlumpf to politicians at closed-door talks on May 16.

Switzerland’s former Justice Minister Christoph Blocher told the paper that Dougan and Rohner need to resign.

“It is shameful that the top brass are ducking for cover instead of fending off damage to the company,” Blocher was cited as saying.

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