FT : SEC prepares new Credit Suisse charges

SEC prepares new Credit Suisse charges

The US Securities and Exchange Commission is preparing to accuse Credit Suisse of misleading investors by improperly inflating its reports of assets under management in its private bank, people familiar with the case said.
Essentially the watchdog plans to allege that starting in 2012 Credit Suisse at times improperly counted client assets in the Americas as net new assets for the Swiss private bank. Investors watch net new assets closely because they are seen as a measure of how the division is performing.

Negotiations between the bank and the SEC over potential civil charges are continuing and Credit Suisse is seeking to downplay the effect of the reporting on investors. The case is unusual for the watchdog, so it is not clear what kind of penalties Credit Suisse might face.
Credit Suisse declined to comment, but its 2014 annual report flagged up the SEC investigation as a potential legal risk. It also said in October that it had tightened up its internal standards on calculating assets under management.
A person familiar with the bank’s negotiating position stressed that the bank had not broken any accounting rules. Accounting rules are not explicit on how net new assets are treated but do require accounts to be fair and true in a general sense.
The net new assets allegations were first publicly raised in February 2014 by the Senate Permanent Subcommittee on Investigations, which spent two years investigating Credit Suisse and accused the bank of hiding its true asset amount to present a more positive image to investors.
During the Congressional hearing, bank officials said they had launched an internal investigation into the issue and acknowledged that some of the evidence uncovered by the senate seemed to reflect inappropriate behaviour.
At the time, the Senate alleged that counting the Americas client assets toward assets under management significantly improved the Swiss private bank’s reported performance in the third quarter of 2012. Rather than reporting outflows of SFr1.5bn, the private bank reported inflows of SFr100m, according to a senate report.
Client assets are less valuable to a bank than assets under management because client assets are associated with lower fees, reducing potential revenue.
The Senate investigation highlighted a February 2012 email from Rolf Bogli, then head of the bank’s high net worth clients in Switzerland, in which he referred to the bank’s net new assets as “very disappointing up until now”.
“As our capability to attract clients and new assets is of utmost importance — also [externally] — we need to take all possible measures in order to change this into a positive story within the next weeks,” he wrote.
At the hearing, bank officials said his email was referring to a normal process of assessing net new assets but also said the language he used was inconsistent with Credit Suisse’s policy on the way such issues should be discussed.
The net new assets case is one of several legacy issues that new chief executive Tidjane Thiam is seeking to resolve at the Swiss bank, which has already paid billions of dollars in fines since the financial crisis.
As part of that effort, the bank changed the way it calculated assets in its recent third-quarter earnings. Credit Suisse said it had reclassified SFr46.4bn in assets under management to client assets, which contributed to the overall SFr61.8bn decline in assets under management for that period.
“The group updated its assets under management policy primarily to introduce more specific criteria and indicators to evaluate whether client assets qualify as assets under management,” the bank said in its third-quarter report.
The reclassification came after the bank hired an independent expert to carry out a review of the way it classified assets. The review found that while Credit Suisse’s policies were in line with the rules laid down by the Swiss regulator Finma, there was “significant scope for interpretation” within those rules. Credit Suisse decided to use a narrower definition of net new assets as a result of the review, a person familiar with the bank’s actions.
Sources familiar with the situation said the reclassification of the assets was not a talking point with investors during the bank’s post-results roadshow, which was dominated instead by Credit Suisse’s SFr6.05bn capital raising.
The main thrust of the senate probe was on how the bank helped thousands of clients evade US taxes, a charge for which Credit Suisse ended up paying $2.6bn to settle. It also became the first major bank to plead guilty to a crime in more than 20 years.
Credit Suisse also faces a possible SEC fine over allegations that it did not adequately disclose information about its dark pool trading venue to clients. The New York Attorney General’s office is also involved in that case.