Julius Baer to pay $547mn to resolve US tax probe

Julius Baer Group, Switzerland’s third-largest wealth manager, said it expects to pay about $547mn to settle a US investigation into how it helped Americans evade taxes, clearing the way for other Swiss banks to resolve similar criminal probes.The bank reached an agreement in principle with the US Justice Department, Julius Baer said in a statement yesterday, as it earmarked another $197mn beyond the $350mn it set aside in June to resolve the probe. The Zurich-based company expects to conclude the agreement of the four-year investigation in the first quarter.Chief executive officer Boris Collardi had said he wanted to resolve the US probe by the end of 2015. Uncertainty around the Justice Department investigation has hampered the company’s ability to make deals, invest in renewing outdated information-technology platforms and even return capital to shareholders. Julius Baer said in July it planned to outline a new capital-management plan in early 2016.“Knowing the final amount gives us more clarity on Julius Baer’s excess capital and potential for acquisitions,” said Jonas Floriani, a London-based analyst at Keefe, Bruyette and Woods with an outperform rating on the shares. “Reaching an agreement should be taken as a positive, even though the amount is higher than the original provision.”Julius Baer rose as much as 4.4% in Zurich. The shares were up 1.8% as of 12:43 p.m., bringing the gain for this year to almost 4% compared with a 3.5% decline in the Bloomberg Europe Banks and Financial Services Index.The bank reached a “comprehensive resolution regarding its legacy US cross-border business” with prosecutors working for Manhattan US Attorney Preet Bharara, according to the statement.In 2011, Bharara’s office indicted two Julius Baer bankers, accusing them of conspiring with more than 180 US clients and others at the bank to hide at least $600mn in assets from the Internal Revenue Service.The accord still needs final approval from the Justice Department, and it will be filed with “related resolution documents” with a federal judge in New York, according to the statement.The announcement came as the Justice Department concludes a disclosure programme in which 75 Swiss banks have avoided prosecutions this year by paying more than $1bn and disclosing how they helped US clients cheat the Internal Revenue Service.Lawyers defending banks have said the Justice Department wouldn’t resume prosecutions of Swiss banks until it completed the programme.About a dozen Swiss banks have been under US criminal investigation since Switzerland’s largest lender, UBS Group, settled with the US. UBS agreed in 2009 to pay $780mn, while Credit Suisse Group, the No 2 Swiss bank, paid $2.6bn in 2014. Both admitted they helped Americans cheat the IRS.Those still under investigation include the Swiss unit of HSBC Holdings, Europe’s biggest bank.“Julius Baer remains committed to cooperating proactively with the DOJ’s investigation,” the company said in the statement. Jan Vonder Muehll, a spokesman for the bank, declined to comment further by telephone.Julius Baer, founded in 1890, has grown through acquisitions in the past six years under Collardi, including the 2012 purchase of Bank of America Corp’s non-US wealth units. The company managed 297bn francs ($299bn) for wealthy individuals and families at the end of October and reported a 78% decline in first-half profit in July, mainly due to the initial provision for the US tax settlement.The provision for the settlement will be included in its 2015 results, Julius Baer said. Even so, the bank expects to report a net profit for the year and remains “adequately capitalised,” with a BIS total capital ratio of 18.6% as per October 31, 2015.US authorities have been aided in their investigations by 54,000 US taxpayers who disclosed offshore accounts to the IRS since 2009, paying more than $8bn in back taxes, penalties and interest, according to the Justice Department.More than three dozen offshore bankers, lawyers and advisers have also been charged. They include Daniela Casadei and Fabio Frazzetto, the two Julius Baer bankers who were indicted in 2011. Casadei worked at the bank from the early 1990s and Frazzetto worked there from 2005, according to the indictment.Both advisers are charged with conspiracy and face as long as five years in prison.Casadei and Frazzetto are still employed by Julius Baer in Switzerland, according to the company.