Banking and consequences usually don't go together

Credit Suisse may lose important designation over tax plea

The U.S. Labor Department is one regulator that hasn’t immediately fallen into line to give Credit Suisse Group AG a pass following its May 19 guilty plea for helping Americans evade taxes.

Now Credit Suisse needs a waiver from the Labor Department to retain its status as a qualified professional asset manager, or QPAM. Otherwise, it will automatically lose that privilege after its Aug. 12 sentencing. Under pressure from prosecutors, the Federal Reserve Bank of New York and the Securities and Exchange Commission have already shown the bank some leniency.

The Labor Department, which oversees $7.9 trillion in pensions, “is not a rubber stamp,” said Michael Trupo, a spokesman. “This is a very serious matter, and we are closely monitoring the situation.” Zurich-based Credit Suisse, Switzerland’s second-largest bank, declined to disclose the amount of public and private pension assets that could be affected by the ruling.

At least six large banks have won Labor Department waivers to keep their QPAM designations in the past 15 years, including Switzerland’s largest bank, UBS AG. Credit Suisse’s guilty plea was entered by its main bank unit and reflects a harsher stance by prosecutors, who also are pressing BNP Paribas SA to plead guilty in a probe of sanctions violations, a person familiar with the matter has said.

Suspending Trading

Although fallout after Credit Suisse’s guilty plea has been contained, the Employees Retirement System of Texas said May 21 it was suspending trading with the bank because of a policy against hiring firms convicted of felonies. Credit Suisse was a broker-dealer for the retirement fund and didn’t have assets under management, said Mary Jane Wardlow, a spokeswoman for the Texas system. A few large pension funds have said they also are reviewing their relationships with the bank.

Credit Suisse shares rose 0.1 percent to 26.65 Swiss francs at 4:06 p.m. in Zurich. The shares are down 2.3 percent since the beginning of the year.

Prosecutors got assurances from regulators including the Federal Reserve that the bank would be allowed to continue business in the U.S. after its conviction, people familiar with the talks have said. The Labor Department declined to comment on whether it was pressed by prosecutors for such a promise.

“Denying QPAM relief could have very drastic implications” for a bank’s dealings with pension funds, said Shannon Barrett, an attorney with O’Melveny & Myers in Washington. “It would be difficult to do business without it and to attract clients willing to engage you.”

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