Private banking subsidiary Clariden
Leu is to be fully reintegrated back into Credit Suisse as the
Swiss giant battles falling revenues, pressure on US client
accounts and a £5.95m ($9.5m) regulatory fine in the UK.
The world’s third largest wealth
manager had survived the financial crisis in better shape than its
embattled Swiss competitor, UBS, but a rolling series of incidents
have hit Credit Suisse’s reputation hard.
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The decision to merge Clariden Leu
back into Credit Suisse is intended to save around CHF200m ($218m)
annually. The integration is part of Credit Suisse’s strategy to
increase the private bank’s contribution to the group’s pre-tax
income by CHF800m by 2014.
Part of the reduction will come
from staff cuts. Credit Suisse said it will reduce group headcount
by 3% over two years, in addition to the 4% it already announced in
its third quarter results.
This equates to about 3,500 staff
across the group, the amount to be cut from its private banking
business was not disclosed.
Clariden Leu, with assets under
management of CHF94bn, was created in 2007 following the merger of
the four Credit Suisse private banks: Clariden Bank, Bank Leu, Bank
Hofmann and BGP Banca di Gestione Patrimoniale.
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By GlobalDataCredit Suisse’s private banking
chief executive Hans Ulrich Meister has been appointed as chairman
of the board of directors at Clariden Leu.
CHF478m set aside for legal
war chest
Clariden’s re-integration comes
after Credit Suisse’s wealth management (WM) division reported a
CHF34m ($38m) pre-tax loss in the third quarter. The dramatic loss
was due to a CHF478m hit the bank took to pay for its cross-border
tax settlements with US and German authorities.
In September, it agreed to pay
German prosecutors €150m (CHF185m) in an out-of-court settlement to
end investigations into whether its employees assisted German-based
clients to evade tax. This suggests Credit Suisse is holding back
almost CHF300m to counter future US legal costs.
Credit Suisse is still facing
substantial pressure from US regulators who are looking into the
Swiss bank’s cross-border private banking services to US
citizens.
Earlier this month, the Swiss bank
passed US client account details to the Swiss Federal Tax
Administration after an official request from the US Internal
Revenue Services (IRS). Clariden Leu followed suit several days
later.
$9.5m fine for suitability
flaws
Its regulatory woes continued in
the UK. In late October, it agreed to pay £5.95m ($9.5m) to the
Financial Services Authority (FSA) for failures related to the sale
of structured capital at risk products (SCARPs) to private banking
clients.
The failures were discovered after
a routine inspection by the FSA in March 2010.
According to the FSA, 623 of the
Swiss bank’s clients invested £1.1bn in 1,701 SCARPs between
January 2007 and December 2009.
During this period, the FSA found
that there were a number of serious failings in the systems and
controls around SCARP sales. The FSA also found that, in a
significant number of cases, the number of client relationship
managers allocated to a given team leader or sector head, were too
high; or the relevant management had too many competing
responsibilities.
Additionally, Credit Suisse UK
management failed to adequately use its internal systems, which
were intended to demonstrate that supervisors had reviewed, among
other things, the suitability of transactions.
An internal report identified that
these reviews were sub-standard in 44% of cases, the FSA said.
Clients to be paid
back
Credit Suisse is now conducting an
internal investigation into the UK flaws, overseen by an
independent third party, in relation to SCARP purchases.
No indication was given over how
long the internal investigation would take.
Credit Suisse UK has agreed to
reimburse clients if they are found to have been advised to
purchase an unsuitable product.
Credit Suisse told PBI
that it has made significant improvements to its processes and
controls since 2009 and it was confident that it currently complies
with its regulatory obligations.
At present, there is no indication of how many assets were lost
by the bank’s UK clients as a result of SCARP sales. As at 31 March
2011, Credit Suisse UK managed £9.84bn worth of assets on behalf of
its 5,474 customers.
