Shares of Julius Baer stock nosed north sharply yesterday after settlement talks with U.S. officials caused them to announced that the bank has set aside $350 million to pay potential fines related to an ongoing criminal investigation into tax practices.
I know: it sounds confusing. Why would shares soar – to an all time high – over the news that the bank would be subject to a massive fine? Because the fine isn’t nearly as massive as feared. Bank investors are clearly relieved that that the private bank, Switzerland’s third largest lender, will likely escape the fate of other Swiss banks which have endured similar investigations.
In 2008, Switzerland’s largest lender, UBS, ranked #73 on Forbes’ Global 2000 list, made news when Raoul Weil, the bank’s then acting chair and CEO was indicted on charges that he assisted US taxpayers hide nearly $20 billion in assets from the IRS. The bank eventually agreed to pay a $780 million fine and turn over the names of US taxpayers involved in the scheme. Earlier this year, the bank revealed that it was once again under investigation by US officials.
Last year, Switzerland’s second-largest lender, Credit Suisse, ranked #139 on Forbes’ Global 2000, agreed to pay a $2.6 billion fine after pleading guilty to an “extensive and wide-ranging conspiracy” to help US clients evade taxes. Investigations into Credit Suisse’s practices also resulted in indictments of seven Credit Suisse employees, the owner of a trust company and a number of the bank’s U.S. clients.
And in 2013, Switzerland’s then oldest private bank, Wegelin, was forced to close after pleading guilty to helping US citizens evade taxes. This, after the bank had previously exhibited considerable swagger by recommending that clients “exit from all direct investments in US securities…” rather than cooperate in the investigation.
Sensing a pattern? Criminal investigations into how Swiss banks have helped wealthy Americans avoid taxes have not generally ended well with the specter of massive fines and potential criminal charges causing many investors concern.
Julius Baer has been on the US Justice Department’s radar for some time. In 2011, Rudolf Elmer, a former banker at Julius Baer, reportedly turned over the banking details of about 2,000 clients to Julian Assange and the WikiLeaks team. At the time, Julius Baer rejected the allegations that it assisted any taxpayers in the commission of tax fraud. However, in 2014, U.S. prosecutors accused the bank of doing exactly that.
The matter was expected to settle in a matter of months. The fact that did not resolve quickly lead some to speculate that the damage might not be as bad as initially feared. The bank’s announcement this week seemed to confirm that.
Calling the matter a “regrettable legacy,” the bank indicated that “settlement discussions have now sufficiently advanced” to set aside the $350 million. Also noteworthy? There has been, to date, no mention of a criminal plea – a stark contrast to the Credit Suisse settlement.
Today, Julius Baer’s stock opened at 52.95 Swiss francs ($56.43 US).
