Thursday, December 19, 2013

Basler Kantonalbank, Under U.S. Criminal Tax Investigation, Makes Accounting Provision for $100+ Million (12/19/13)

Basler Kantonalbank, one of the Swiss Cantonal banks, is currently under criminal investigation by the U.S. DOJ and thus is not qualified for the new U.S.Swiss Bank Program.  The bank announced today that was was making a provision for $112.74 for the costs it expects to incur.  See UPDATE 2-Basler Kantonalbank to take 100 mln Sfr provision for U.S. tax (Reuters 12/19/13),here.  Key excerpts:
Basler Kantonalbank said it will take a 100 million Swiss franc ($112.74 million) provision against full-year earnings to cover legal costs and fines from a U.S. crackdown on tax evasion. 
* * * * 
The bank said the move is in response to the Swiss financial regulator telling all Swiss banks, either being investigated or coming clean in a government-brokered programme, to prepare themselves financially. 
* * * * 
This could mean a wave of provisions from Swiss banks, which have until the end of the year to come forward if they are not already being investigated formally. 
Many have done so, including Geneva-based Banque Privee Edmond de Rothschild, which came forward on Thursday, though EFG International is one of the few that has remained silent on its intentions thus far. 
Swiss financial regulator FINMA denied that it called for Swiss banks to take provisions but said that it may issue recommendations later based on consultations it is conducting with trade bodies. 
* * * * 
The success of the scheme, open to a host of second-tier banks in Switzerland, is key for a future settlement for 14 larger Swiss banks being investigated. Among those under investigation are Credit Suisse, Julius Baer , Pictet, local government-backed Zuercher Kantonalbank (ZKB) and Basler Kantonalbank. 
Credit Suisse, which took a 295 million franc provision two years ago, and Julius Baer, which has not set anything aside, declined to comment on Thursday.
I suspect that the banks joining the program will also begin making such provisions for their costs.

The amount of these costs certainly suggests that Basler Kantonalbank's U.S. tax evasion activities were quite substantial, an inference one might also draw from the fact that it is under criminal investigation by the IRS.  See Swiss Cantonal Banks and the U.S. Tax Juggernaut (12/18/13), here.

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