Credit Suisse’s Tardiness Likely to Extend Monitor’s Sojourn
Neil Barofsky’s stay is likely to be longer than expected
Now, the former federal prosecutor, assigned by a New York regulator in 2014 to monitor the Swiss bank after a tax evasion scandal, may be sticking around much longer. The reason: the bank hasn’t been able to provide all of the information he’s requested in a timely manner.
For Credit Suisse, his longer-than-expected stay highlights the challenge of drawing a line under its recent troubles, as the bank revamps under new management.
Mr. Barofsky was tapped by the New York Department of Financial Services to investigate Zurich-based Credit Suisse’s compliance programs and its dealings with American clients, after the bank admitted in May, 2014, to aiding U.S. tax evasion.
Not long after Mr. Barofsky’s engagement in October, 2014, a so-called tolling period was triggered, as Credit Suisse struggled to produce information at a pace and volume that he required, according to a person familiar with the matter.
The tolling period delayed the start of a countdown to the end of Mr. Barofsky’s tenure, which was originally slated to “not exceed two years,” according to a consent order. Mr. Barofsky’s term is being paid for by the bank.
The tolling period ramped up pressure on Credit Suisse, the person familiar with the matter said, and indicates that Mr. Barofsky may end up probing the bank for a total of three years or more.
Credit Suisse has sought to bring the tolling period to a close soon, by providing everything Mr. Barofsky has asked for, the person familiar with the matter said.
Related costs have mounted. For the second quarter of this year, Credit Suisse disclosed expenses including the cost of the monitor that amounted to 66 million Swiss francs ($65.5 million). The figure rose to 68 million francs for the following, third quarter. Credit Suisse hasn’t yet reported fourth-quarter results.
Depending on how long the investigation lasts, its total cost may end up being several multiples of what’s already been recorded, according to the person familiar with the matter.
Mr. Barofsky has closely examined the bank’s dealings with U.S. clients. A group of more than 100 Credit Suisse employees and external contractors hired by the bank is assisting him, the person familiar with the matter said.
When Credit Suisse pleaded guilty to aiding U.S. tax evasion in 2014, it settled with regulators including New York’s Department of Financial Services. The DFS required the appointment of the monitor as part of the settlement.
Now, Credit Suisse must continue to accommodate Mr. Barofsky as it seeks to move forward with a strategy overhaul under Chief Executive Tidjane Thiam. The bank recently raised 6 billion francs in new capital to bolster that effort.
Mr. Thiam said in a statement given to The Wall Street Journal that he has “found the monitor’s work very helpful.”
“We consider his requests for information and meetings appropriate,” Mr. Thiam said. “The issues he has identified working with us are real and we are working hard to implement his recommendations.”
Mr. Barofsky’s suggestions so far have included formalizing the process for Credit Suisse bankers to deliver information about a prospective client’s nationality to internal staff tasked with verifying it, according to a person familiar with the matter.
A spokesman for New York’s DFS said in a statement that, “Both at Credit Suisse and more generally, monitorships are a critical part of making sure we truly clean up and reform a bank’s operations.”
Credit Suisse funds Mr. Barofsky’s regular trips to Switzerland, where he stays at upscale hotels at rates negotiated by the bank.
Mr. Barofsky has also recently begun dropping in on Credit Suisse’s overseas offices, people familiar with the matter said.
So far, he has interviewed dozens of managers at the bank, according to people familiar with the matter, and has also quizzed junior bankers on compliance procedures.
Mr. Barofsky is one of a number of monitors placed at big banks in recent years, as regulators seek to deter future misbehavior. Other foreign banks assigned monitors by U.S. regulators include Deutsche Bank AG and HSBC Holdings PLC.
Mr. Barofsky solidified his reputation as a dogged investigator during his time as special inspector general for the U.S. Treasury Department’s Troubled Asset Relief Program, or TARP, during the financial crisis.