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(Bloomberg Gadfly) -- As an international tax-evasion probe ensnares Credit Suisse Group AG, the bank says it has a "zero-tolerance" policy that's more than just talk. Its weekend charm offensive flagged cash invested in compliance and risk controls, as well as business sacrificed by weeding out irregular clients.

But whatever happens in this case, it's likely that the cost of transparency for Swiss private banks -- whether through clients pulling cash or more compliance -- is going to get steeper. The business of wealth management, which has been a darling of financial markets and a key plank of Credit Suisse Chief Executive Officer Tidjane Thiam's strategy, needs a lot of things to go right to offset the challenges ahead.

There's a lot we still don't know about the new probe, which spans five countries and has led to arrests as well as the seizure of "a gold bar, paintings and jewelry," according to Bloomberg News. Despite its large scope, it's not clear whether all the accounts involved are current, with the Swiss press suggesting some might be former clients, which might make some difference in terms of reputational damage.

Credit Suisse says it's cooperating and that it will mete out punishment to any employee caught violating policies. Its share price is down about 2 percent since Friday, when the news broke.

But investors are probably right to be cautious. This latest regulatory swoop is a reminder that private banks, which have been a tempting target for cash-strapped governments since the financial crisis, are still in the firing line. Wealth management is also a business that's core for Thiam, whose strategy depends on a shift away from investment banking. The prospect of steeper compliance costs or brand damage won't help.

It's no secret that, even setting aside legal settlements, Swiss banks including Credit Suisse and UBS AG have suffered years of business outflows as a result of tax "regularization" -- the jargon for clients jumping or being pushed into settling tax bills as part of a government deal. Credit Suisse alone suffered about $45 billion of regularization-related outflows between 2011 and end-September 2016, according to Deutsche Bank research.

Banks like to emphasize that most of this pain is in the rear-view mirror, especially now that Switzerland and the European Union have signed up to automatically exchange tax information on bank account-holders. New money coming in from emerging markets is also helping to plug the gap.

But the cost of complying with government demands for tax transparency refuses to go away -- and not just because of this latest probe. Tax amnesties are a "rolling thunder" for wealth managers in emerging markets such as Latin America, not just Europe. Credit Suisse management has said it still expects another $9 billion of regularization-related outflows in 2017.

And this comes at a time of structural pressure on fees and margins, with investors switching to cheaper products at a time of low rates. The gloomiest regularization scenario would see Switzerland's top banks face a pre-tax profit hit of some 24 percent, according to Deutsche Bank.

The question for investors, who may be called upon to back Thiam's strategy with a fresh slug of capital, is whether mounting state scrutiny of Swiss bank balances means there's still too much optimism baked into Credit Suisse's outlook. Revenue and pre-tax profits are expected to grow over the next three years, according to analyst forecasts compiled by Bloomberg, after two straight years of losses. Rival UBS is trading at a premium to book value, suggesting investors still prize profitable wealth managers. Economic growth prospects can be fickle; the taxman, less so. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

To contact the author of this story: Lionel Laurent in London at llaurent2@bloomberg.net.

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net.

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