Swiss banks face heavy fines

CSFB has to contend with a hefty fine and big losses Keystone Archive

Switzerland's two biggest investment banks are facing fines of up to $250 million (SFr372 million) in the United States for allegedly misleading investors.

This content was published on November 26, 2002

The action follows an investigation by the Securities and Exchange Commission into the activities of Credit Suisse First Boston (CSFB), UBS Warburg and other banks.

The Washington Post reported that CFSB had already been notified of a $250 million fine.

The Financial Times said UBS Warburg was this week expected to face a fine amounting to anything between $25 and $250 million.

The SEC accuses several banks of writing overly positive research reports in order to mislead investors and win clients.

Analysts say US regulators are holding meetings with several Wall Street firms to inform them how much they will have to pay to end investigations by state regulators and the SEC.

The fine is a blow to CSFB, which is facing major financial problems, and has already forked out $100 million last January to settle an earlier investigation over allegedly mishandling stock offerings between April 1999 and June 2000.

CSFB is also facing a fine of $2 million after state regulators in Massachusetts accused the investment bank of misleading investors by issuing biased research.

The company has described the complaint as "fundamentally flawed", according to media reports.

Conflicts of interest

The current investigations focus primarily on possible conflicts of interest between individual banks' research and investment banking arms.

The issue has led to calls for banks to separate the two areas. Some, including a Geneva private bank, Pictet, as well as Citigroup - the world's largest - have already announced plans to do so.

CSFB has refused to say whether it is considering such a move.

Much of the industry remains opposed to such a step. The Swiss Bankers' Association takes the view that so-called "Chinese Walls" - the unofficial separation between research and investment banking - are sufficient to guarantee honest advice for clients.

"We are in favour of clear 'Chinese Walls'... we think that a complete separation of research and investment would go too far," said the association's Thomas Sutter last week.


Hilary Cook, director of investment strategy at Barclays in London, agrees that such a separation would be problematic, but says the lack of trust in investment banks needs to be addressed.

"Where exactly we should strike a balance between Chinese Walls and strict regulation remains to be seen - it clearly hasn't worked to date.

"The most important thing is that the confidence returns to the industry and investors feel that they can again believe in research," she told swissinfo.

In the meantime, says Cook, clients will view research conducted by investment banks with a critical eye.

"We will certainly see more research departments that are set up on behalf of the client in order to double-check the research that comes out of the investment banks."

She added that the main problem with separating research from investment banking was how research would be funded.

"The problem with making the research arm independent is that a large part of the revenue that funds the research department comes from the investment banking side," said Cook.

"It remains to be seen how this newly independent research will be paid for."

swissinfo, Billi Bierling and Vanessa Mock

Key facts

CSFB and UBS Warburg are facing fines of up to $250 million for allegedly misleading investors.
One of Switzerland's biggest private banks, Pictet, has already introduced measures to split its investment banking and research arms.
CSFB was fined $100 million earlier this year to settle a probe into its IPO practices.

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