The bank's top lawyer proactively tackles the bank's numerous scandals and legal cases. But can it really afford all of them?

Markus Diethelm seems to be chalking up the points right now. The former top lawyer for UBS, who took the same job at Switzerland's second-largest bank just this past June, announced a big breakthrough in a legacy case left over from the 2008 financial crisis on Monday.

As finews.asia previously reported, Credit Suisse agreed to a one-time payment of $495 million to settle claims in full related to the now toxic residential mortgage-backed securities, a case that had been hanging over the bank's head for nearly a decade.

Surprising Confession

It was another step by Diethelm to unclog all the legal cases facing the bank. Before him, Romeo Cerutti, his predecessor, and former chairman Urs Rohner, seemingly made it a habit to categorically reject any legal issues that came their way. That resulted in a towering legacy of cases that have resulted in any number of recent court defeats, significantly impairing the bank's ongoing business.

In September, there was even a surprising turn of events in Singapore when a bank trust subsidiary admitted in court that it did not inform former billionaire client and ex-Georgian Prime Minister Bidzina Ivanishvili about unauthorized transfers from his accounts.

The confession was highly surprising in and of itself and is another example of the new direction the bank is taking under Diethelm, who personally was in the city-state for three weeks while the case was going on. Under his leadership, the bank is ostensibly prepared to make significant admissions to draw lines under legal issues that have remained unresolved for years.

Poison Pill

That is a logical course of action given the situation that the bank finds itself in. It posted a loss in the last three quarters, and it won't be able to start afresh if it doesn't manage to put all its past scandals to bed. Any announcement of a new strategy, as is expected on 27 October, might potentially be overshadowed by significant, remaining legacy issues.

That is also why investors have kept their fingers away from Credit Suisse, prompting its shares to fall by half since the start of the year.The question now is whether the bank can afford Diethelm's more proactive approach given that analysts estimate capital shortfalls between now and 2024, without including the legal cases, at between $4 billion and $9 billion dollars

The sum being paid out for the RBMS case is also no trifling matter. On top of that, Ivanishvili is asking for $1.27 billion in damages in Singapore after a court in Bermuda already awarded him and the other plaintiffs about $600 million, a judgment that Credit Suisse subsequently appealed against. But there are many other cases still out there according to research from finews.asia.

1. Australia

Further details on the Greensill debacle came to light on Monday. In November, there will be legal proceedings in Australia in which Credit Suisse will seek compensation from the supply chain fund's insurers. The proceedings are being seen as a test case as to whether the bank can push through its claims, as most insurers, including Japan's Tokio Marine, are not expecting to have to pay anything out.

2. US DoJ

Recent developments in the US are ominous. According to various media reports, the US Department of Justice is investigating whether the bank helped citizens hide assets from authorities in the eight years after it paid a $2.6 billion fine for tax evasion.

According to the reports, investigators are looking into whether the bank helped US account holders, in particular those with South American passports, conceal hundreds of millions of dollars from the Internal Revenue Service. Authorities were said to have relied on tips from within the bank. The allegations, which originated among Washington DC government insiders, are by themselves nothing new.

Credit Suisse denies improper conduct and says it is cooperating with authorities including the US Senate and Justice Department. Although the bank no longer has a monitor in place from the original settlement, it is clear that any repeat infraction would result in what would likely be a severe, even draconian, punishment.

3. Class Action

Various class action lawsuits have been filed in connection to Greensill and the Archegos family office collapse. Although none of them have reached the courts yet, they are also not going to disappear in thin air. Moreover, Swiss regulator Finma has live enforcement proceedings related to both Greensill and Archegos and both could be used as evidence depending on the outcome.

4. Tuna Fish Bonds

The fallout is not yet over following the $475 million settlement and fine reached in October 2021 related to the Mozambique scandal, which goes back to 2013 when UK-based Credit Suisse subsidiaries granted loans worth $1 billion to two Mozambican state-owned companies. Some of the funds, which were supposed to be used to strengthen the country's coast guard and create a tuna fishing fleet, were diverted by corrupt officials. Consequently, any admission of fault in the US related to the tax evasion case, which the FBI is still investigating, could have unforeseen ramifications.

In 2019, Mozambique's attorney general filed a lawsuit at the Commercial Court in London, naming Credit Suisse along with three of its former bankers, among others. The bank, for its part, felt it had been deceived by its ex-employees and filed a counterclaim at the High Court in London in early 2020 claiming damages against Mozambique for guarantees breached by the country.

In a separate but related step, investors who bought roughly $622 million of «tuna bonds» filed a civil action case in the UK High Court at the end of 2020. Mozambique is also a defendant alongside the bank in the trial, which is scheduled for September 2023 and expected to take 13 weeks. As part of that, in July, Credit Suisse agreed to pay out $22.6 million in compensation to investors who bought the bonds in a New York court.

5. The Neighbors

Like other Swiss banks, Credit Suisse is under fire from its neighbors. Investigations about possible tax evasion have gone quiet in Belgium, France, and Italy but that does not necessarily mean they are over. Just this past May, the French authorities indicated they were investigating Switzerland's second-largest bank on the suspicion they helped clients evade taxes.