Nudge for Swiss Bank US Resolution May be a Plus

By John Letzing

ZURICH--Punishment might be a plus for Swiss banks.

Wednesday, the Swiss finance department sketched the broad outlines of a plan that will nudge the country's banks toward resolving legal disputes with U.S. authorities if it is approved. A handful of banks, including Credit Suisse Group AG (CSGN.VX) and Julius Baer Group AG (BAER.VX), are already under investigation by U.S. authorities for allegedly having helped wealthy Americans evade taxes.

The Swiss plan chips away at the country's famed banking secrecy by allowing banks to share some information, though not client account data, with U.S. authorities. The U.S. can use that information to levy fines against individual banks, which analysts say will help the financial industry put its problems in the past.

The proposal is "preferable to a lengthy dispute with U.S. authorities," Fitch Ratings analysts said Thursday in a report. The report said the plan will remove uncertainty for the banks, letting them get back to normal business.

Although the plan has been widely panned by Swiss observers, who argue the Swiss rolled over in the face of U.S. pressure, investors accepted the deal in stride. In afternoon trading, shares of Credit Suisse were up nearly 2% at CHF28.35, while shares of Julius Baer were up 0.1% to CHF37.85.

UBS AG (UBS), which has already settled with the U.S. government, was down marginally at CHF16.98, while the benchmark SMI Index was up 0.04%.

Of course, the plan isn't a cure-all for the banking sector.

Much of the detail is unknown, including how much the U.S. may fine banks found to have helped tax cheats. And the plan still needs to be approved by the Swiss parliament, which will address it in June. Delays or a rejection could set the industry back again.

It may also set the stage for other countries, particularly Switzerland's European neighbors, which have been pushing Bern on tax evasion issues separately to the U.S.

Still, analysts say banks will probably benefit from the plan, which represents a step forward in what had been a slow-moving clash. Bigger banks, like Credit Suisse and Julius Baer, should be able to weather potential fines though surprisingly large penalties might swamp the finances of smaller banks.

Credit Suisse has set aside 295 million Swiss francs ($307 million) to deal with U.S. legal issues, while Julius Baer has said in a statement it is confident it has the resources to deal with the matter. UBS paid a $780 million fine for aiding tax evasion in 2009.

Some analysts say the erosion of banking secrecy--long a competitive advantage for Switzerland's banking industry--might help the industry find new strengths. Since the bailout of UBS following the financial crisis, Swiss authorities have required banks here to carry fatter capital cushions than their competitors in other countries.

Pete Hahn, a lecturer at the Cass Business School in London, said Swiss banks are sturdier than some of their rivals because they maintain capital bases nearly twice as large.

That, Mr Hahn said, "might end up being their new competitive advantage."

Write to John Letzing at [e-mail]

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