In the eyes of many, banks are quite literally too big to jail. No one would dare criminally charge a bulge-bracket firm due to the catastrophic ramifications for bank, and potentially the economy in general. At least so goes the theory. U.S. prosecutors are now threatening that supposition. Conveniently, they’re going after non-U.S. banks.
Multiple media outlets on Wednesday reported that federal prosecutors are nearing criminal charges against Credit Suisse and BNP Paribas. The French bank has been accused of doing business with sanctioned countries, including Iran, and then trying to cover it up. Prosecutors are also pushing for a guilty plea from Credit Suisse for aiding tax evaders in the U.S.
Any decision to criminally charge the massive banks – something that hasn’t been done in over two decades – would be eye-opening to say the least. Prosecutors have historically ignored the possibility due the collateral damage for investors and hundreds of thousands of employees. The memory of Arthur Andersen, the accounting firm representing Enron that collapsed following a 2002 conviction, is often evoked as a point of warning for prosecutors.
Others have said that not charging large banks has set a precedent that enables them to continuing breaking the law, knowing all they’ll face is a fine, usually a decade or so down the road. The dynamic has created a “gaping liability loophole that blameworthy companies are only too willing to exploit,” said Preet Bharara, U.S. Attorney for the Southern District of New York.
What would be the results of a guilty plea? No one seems to know exactly. Surely they wouldn’t shutdown U.S. operations for two EU banks with massive presences in the country. Sources told Bloomberg that a deal could result in BNP being forced to fire some employees, clawback pay and, most notably, stop transferring money through New York branches on behalf of foreign clients, at least for a temporary period.
One former banking regulator told Bloomberg such a “nuclear sanction” is simply unrealistic. We’ll see. Stay tuned.
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Barclays is planning to create a so-called “bad bank” of unwanted assets and units that will be sold or wound down, including the majority of its commodities division. Eric Bommensath will oversee the bad bank, leaving Tom King as the sole head of Barclays’ corporate and investment bank.
Deutsche Bank has poached two Morgan Stanley MDs to help run its healthcare services M&A team in the U.S. Andrew Bhak and Peter Zippelius will both remain in New York. In a memo, DB said healthcare M&A remains a focus for future investment.
New York money manager Brian Callahan has pleaded guilty to running a $96 million Ponzi scheme. He used part of the money to fund a failing beach resort in Montauk.
The ongoing probe into the alleged manipulation of foreign exchange markets has had a major impact on FX trading. More than 30 traders have been fired, suspended or retired, which is a lot considering large banks combine to employ between 80 and 160 voice traders. With fewer people trading, liquidity is down and the market has become susceptible to quick swings.
Pimco founder Bill Gross opened his latest investor letter with yet another perplexing anecdote. This one was about the erotic nature of sneezing. He then seamlessly transitioned into a talk on the neutral federal funds rate.
Buzz Around the Office
An attempted carjacker was in for a rude awakening when the car’s driver unexpectedly took off with him stuck on roof, where he remained for eight miles of highway driving. After finally hitting a spot of traffic, he jumped off, carjacked someone else, crashed the vehicle, and was then arrested.
Quote of the Day: “A number of banks have created a bad bank in the hope that investors will look past non-core assets and value the core franchise that makes a much higher return. However, given bad bank assets have long durations, especially the really toxic stuff, investors are not fooled by this.” – Simon Maughan, head of research at Olivetree Financial Group in London, on Barclays