The stock price of Swiss bank Credit Suisse barely budged on news it agreed to pay a $2.6-billion (U.S.) penalty after pleading guilty to conspiring to help American citizens avoid taxes.ARND WIEGMANN/Reuters
The headline was impressive: For the first time in a decade, a giant bank pleaded guilty to a criminal charge in the United States. Federal prosecutors declared a major victory while the bank in question – Credit Suisse Group AG – agreed to pay a $2.6-billion (U.S.) penalty and undergo monitoring of its activities.
For Credit Suisse, it's a humiliating, unpleasant and expensive outcome, which its lawyers sought mightily to avoid. And prosecutors can rightly say they pushed to hold an institution accountable for violating U.S. law and obstructing investigators.
So why does this milestone feel less than wholly impressive? Perhaps because, aside from the fine and the monitoring and the public embarrassment, very little appears to be changing for Credit Suisse.
Its chief executive, Brady Dougan, and chairman Urs Rohner, have succeeded in their bid to remain in their roles. Its stock price barely budged in response to the news. All of its relevant licences to operate in the U.S. remain in force. So far, there are no signs that investors, customers or counterparties are panicking after the bank pleaded guilty to conspiring to help U.S. citizens avoid taxes.
"All the discussions with clients have actually been very reassuring," said Mr. Dougan on a conference call on Tuesday. "We continue to be hopeful and encouraged that there will be very little impact on business as we go forward."
Indeed, prosecutors tried to contain possible consequences for the bank. For instance, they worked with state and federal regulators to head off further punitive measures, according to the Wall Street Journal. They also reassured large financial firms that the guilty plea wouldn't set off broader instability in the system, Bloomberg News reported.
Prosecutors are treading a fine line. They don't want to destroy a bank, but they don't want to be seen as soft either. For years, they relied on "deferred prosecution agreements" to handle such misconduct – in essence, declining to mount a criminal prosecution on the condition that a bank pay a fine and clean up its act.
What is happening to Credit Suisse seems much like a deferred prosecution agreement, only with some additional stigma. That's not enjoyable, but it isn't exactly going to send shivers down the spine of any bank executive, present or future.
Regulators defended their decision to limit the consequences for the bank and its leadership. "You don't just say, 'Well, you were upper management, off with your head,'" said Benjamin Lawsky, the top banking regulator in New York State, on Tuesday, according to The Wall Street Journal. Mr. Lawsky, who was deeply involved in the Credit Suisse case, continued: "I think it has to be a careful analysis when you're talking about individuals and their lives and their careers."
That's a thoughtful and reasonable position. But deterrence, as prosecutors will tell you, is about sending a message. It's about showing the costs of bad behaviour so that people think twice about engaging in it. And in this case, it's far from clear they've succeeded.