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Credit Suisse (CS) to Pay $90M on Asset Misrepresentation

CS ITUB GGAL BMA

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Credit Suisse Group AG (CS - Free Report) has agreed to pay a fine of $90 million and admit charges that it misrepresented the way to determine net new assets (NNA), a key performance metric of its wealth management business.

U.S. regulators found that Credit Suisse had misguided investors by wrongly representing its NNA. This metric is useful for investors in determining how successfully a bank can attract new business.

According to the findings, during 2011–2012, the bank was valuating assets on a case-by-case approach, based on its clients’ intentions and objectives. However, at times, it had deviated to an undisclosed ‘result-driven’ approach to achieve targets set by senior management.

The regulator also stated that the bank’s former Chief Operating Officer of private banking division, Rolf Bogli, has agreed to pay $80,000 as penalty to settle charges for his role in the bank’s wrongdoings.

Bogli has been alleged to have put pressure on the bank’s employees to improperly reclassify certain high net worth clients’ assets into NNA. This was done despite objections raised by the concerned employees who were aware of the clients’ needs. Bogli did not accept or deny the SEC’s findings.

Background

The SEC’s probe was initiated more than two years back. It followed the U.S. Senate’s investigation report release in Feb 2014. In this report, Credit Suisse was found guilty of favoring wealthy Americans in off-shore tax evasion. The bank aggressively sought business from American customers who were conspiring to hide their money from the U.S. government.

The report also included the bank’s public statement to investors, where it misrepresented the NNA performance. Further, it was discovered that during 2012, several senior management and accounting officials of the bank did not adhere to their own methodology to measure the NNA. At that time, the Swiss bank was facing heightened scrutiny for assisting tax evaders. This resulted in the bank’s net cash inflows to dry up.

Credit Suisse’s stock currently carries a Zacks Rank #5 (Strong Sell).

Banco Macro S.A. (BMA - Free Report) and Grupo Financiero Galicia S.A. (GGAL - Free Report) are better-ranked stocks in the same space, sporting a Zacks Rank #1(Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Both the stocks have delivered an average positive earnings surprise over the trailing four quarters.

Itaú Unibanco Holding S.A. (ITUB - Free Report) is another stock in the same space that warrants a look. The stock, holding a Zacks Rank #2 (Buy), delivered positive earnings surprise over the trailing four quarters.

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