Credit Suisse Among Banks in Limbo Over Wall Street Penalties
Nov. 14 (Bloomberg) — Wall Street has hit an unexpected stumbling block in its efforts to move beyond government enforcement actions.
Even after admitting to fraud or pleading guilty to a crime, banks have routinely been granted special exemptions by U.S. regulators that allow them to keep managing billions of dollars in pension assets and issue securities. Now, the Labor Department and Securities and Exchange Commission are reevaluating their policies on waivers, leaving some of the world’s biggest banks in limbo.
Credit Suisse Group AG is the latest to feel the pressure. The bank, which pleaded guilty in May to helping Americans evade taxes, has asked a judge to delay sentencing while it tries to secure a Labor Department waiver allowing it to continue managing pension money. The department has yet to decide and is now planning a rare public hearing for early next year to address the issue, three people with knowledge of the matter said.
Credit Suisse is scheduled to be sentenced on Nov. 21. The Labor Department may grant a temporary waiver that would protect the bank’s pension business until the hearing takes place, the people said.
Credit Suisse is one of several banks grappling with the issue. BNP Paribas SA has also sought sentencing delays after its July guilty plea while it pursues the same Labor Department waiver. UBS AG is hesitating to settle a French criminal tax- evasion case in part over concern about the repurcussions for its business in the U.S., two people familiar with the matter have said.
‘Full Arsenal’
In recent years, fines have ballooned amid criticism from lawmakers, judges and investors that regulators were too soft on Wall Street for misconduct related to the 2008 financial crisis. The Justice Department has also secured guilty pleas by two global banks, a move resisted by prosecutors for years over concerns it could cause a company to fail.
Still, critics have said that the penalties and guilty pleas ring hollow if the banks are spared lasting harm to their businesses through regulatory waivers.
“While law enforcement has tallied up record monetary settlements in response to this conduct, we remain concerned that our regulators are not using the full arsenal of tools available to protect the public and retirees from bad actors and to ensure that criminal behavior is appropriately deterred,” House Democrats Maxine Waters, Stephen Lynch and George Miller wrote in a letter to the Labor Department last month.
The Labor Department has the power to designate certain companies as Qualified Professional Asset Managers, a key requirement for banks to carry out bond, currency and derivative transactions for pension-fund clients. A bank automatically loses that status if it or one of its affiliates is convicted of certain crimes, unless the department grants it the special waiver.
The Labor Department didn’t immediately respond to a request for comment. Credit Suisse spokesman Calvin Mitchell declined to comment.
SEC Deadlock
Waivers have also become a flashpoint at the SEC, which can limit the repurcussions for companies that have violated securities law.
Bank of America Corp., which agreed to pay $16.7 billion over claims it improperly sold bonds backed by toxic mortgages, is trying to convince the SEC to spare its ability to manage mutual funds, seek investors for private firms, and issue its own shares or bonds without regulatory approval, people familiar with the matter have said.
SEC Chairman Mary Jo White is recused from the decision, leaving the agency’s Democratic and Republican members deadlocked and Bank of America twisting in the wind.
Public Objection
The issue has simmered at the agency for years as Democratic commissioner Luis Aguilar argued that relief was being granted without enough scrutiny. In April, the debate heated up when Kara Stein, another Democratic commissioner, publicly objected in a 3-2 vote to grant Royal Bank of Scotland Group Plc a waiver to continue offering its own securities without SEC approval, following its criminal conviction for manipulating the London Interbank Offered Rate.
Denial of waivers, Stein said at the time, has “the potential for deterrence at large institutions that no one-time financial penalty could ever wield.”
Lawmakers are pushing regulators to toughen their approach.
In June, Senator Sherrod Brown wrote a letter to SEC Chair Mary Jo White expressing concern that the agency “appears to make waivers the rule rather than the exception.” Brown faulted the SEC for granting relief to RBS and Credit Suisse after their guilty pleas and urged White to revise the approval process.
“Removing privileges enjoyed by large firms will promote better behavior, increase accountability, and demonstrate to the financial markets that certain firms do not enjoy special treatment by virtue of their size,” Brown said.
To contact the reporters on this story: Neil Weinberg in New York at nweinberg2@bloomberg.net; Jeffrey Vögeli in Zurich at jvogeli@bloomberg.net To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net Joshua Gallu
