Credit Suisse Settles with German Authorities to Clear Overhang

September 26th, 2011 by Trefis Team
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Credit Suisse

Credit Suisse (NYSE:CS) recently ended its year-long tussle with the German Public Prosecutor’s Office with a €150 million ($200 million) settlement. [1] Employees of the Swiss bank were under investigation since early last year for assisting German clients in evading taxes. Credit Suisse will recognize the settlement charges as a part of its third quarter performance. Credit Suisse competes with other global financial institutions including UBS (NYSE:UBS), Deutsche Bank (NYSE:DB), JPMorgan (NYSE:JPM), Goldman Sachs (NYSE:GS), Citigroup (NYSE:C) and Morgan Stanley (NYSE:MS).

We are in the process of revisiting our price estimates for the banking sector in light of events in Europe and other macroeconomic factors.

German Investigations Target Tax Evaders

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The German Public Prosecutor’s Office in Dusseldorf stepped up its investigation of Credit Suisse employees for assisting German citizens in tax evasion after it acquired detailed information about 1,100 Swiss accounts held by wealthy Germans in February of last year. [2] In an attempt to crack down on the nearly €1 billion ($1.35 billion) in undeclared assets, the investigations targeted the individuals involved as well as the Credit Suisse employees responsible for facilitating the tax evasion. In fact, the investigators raided not just Credit Suisse branches, but also the homes of many Credit Suisse employees in July of last year.

Settlement Clears the Overhang

Early last month, the German and Swiss governments signed an agreement which settled the existing tax disputes Germany had with the Swiss banking system. ((Swiss to pay 2 bln Sfr for German tax deal, Reuters, Aug 7 2011)) The settlement included a one-time lump sum payment and will be followed up with all Swiss banks annually deducting taxes for all German citizens holding Swiss bank accounts.

The announced settlement by Credit Suisse puts to rest all tax-related issues between the bank and German officials. While the bank’s Swiss Wealth Management business will take a small hit this year as a result of the settlements, this clearly is in the bank’s best interest in the long run.

See our estimates for Credit Suisse

Notes:
  1. Credit Suisse to Pay EU150 Million in Dusseldorf Prosecutor Deal, Reuters, Sept 2011 [↩]
  2. Credit Suisse offices raided by tax officials, BBC News, July 14 2011 [↩]