Credit Suisse’s US$2.8 billion settlement and criminal plea may set a precedent for deals with other banks facing major investigations in the U.S., says Fitch Ratings.
In a new report, the rating agency says that Credit Suisse’s recent settlement with U.S. authorities, which involves a large fine and a guilty plea but no licence withdrawals, “is likely to set a precedent” for other banks involved in high-profile investigations. Banks that are facing various investigations by U.S. authorities, including sanctions violations, tax evasion, LIBOR fixing, FX trading and commodities dealing, could end in similar deals, Fitch suggests.
The rating agency says that it does not expect any of these deals to significantly disrupt large global banks’ operations, as the authorities want to maintain financial stability. However, it notes that it remains to be seen whether some clients and counterparties may terminate relationships with banks that plead guilty.
Standard & Poor’s Ratings Services echoed this concern as it affirmed its ‘A/A-1′ counterparty credit ratings on Credit Suisse AG following the deal. “We do not expect the criminal charge to prohibit client relationships, nor negate legal contracts within the global investment bank to a material degree,” it says. “However, given the lack of recent precedence, there remains some uncertainty as to the view of the criminal charges that Credit Suisse’s clients will take, and certain clients’ abilities to maintain business with Credit Suisse.”
S&P maintains a negative outlook on the bank’s ratings, which implies that it could lower the ratings on Credit Suisse by the end of 2015. “Specifically, we may lower the long-term rating by up to one notch, net of the removal of the negative notch of adjustment included in the rating, if we believe that extraordinary government support has become less predictable under the new Swiss legislative framework,” it says.
It also says that the bank’s rating could be revised downward “if the implications of the guilty plea on the bank’s customer relationships and its ability to operate are more detrimental to the bank’s risk and business profile than expected.”
Fitch also says that ratings could come under pressure if client reaction to these sorts of deals is more negative than expected — not just as Credit Suisse, but for other banks too.
In the case of BNP Paribas for instance, where the investigation is looking into dealings with countries subject to U.S. sanctions, Fitch says that it expects the bank’s fine to be high, “potentially larger than at Credit Suisse, as the level of fines imposed on banks by the U.S. authorities, including the Department of Justice, has been rising.”
Fitch also suggests that a guilty plea by BNP is likely after the precedent set by Credit Suisse. It notes that U.S. attorney general, Eric Holder, has indicated a greater willingness to pursue criminal charges against large banks. “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,” it says.