Deutsche Bank's settlement of a U.S. tax fraud case has raised expectations of similar deals being struck by other banks, although there was relief that the $553.6 million cost to the German bank would not hit its earnings.
Germany's flagship lender admitted criminal wrongdoing for taking part in fraudulent tax shelters that allowed clients to hide billions of dollars, and agreed to pay up to settle the case, U.S. prosecutors said on Tuesday.
But unlike Swiss rival UBS which suffered a client exodus after an earlier settlement, Deutsche Bank was seen as less likely to face a longer-term reputational damage.
Bank secrecy does not present the same hurdle to Deutsche Bank handing over client data to U.S. authorities if necessary and the financial settlement should draw a line under the matter, a Zurich-based tax lawyer told Reuters.
Deutsche Bank said the deal would not hit profits and its shares were only marginally weaker as markets digested the news.
Several analysts expressed relief that the German bank had managed to settle the case and added that its earnings were unlikely to be impacted by the situation.
We see it positively that this issue has been settled. Deutsche Bank has made sufficient provisions, that means there will be no earnings impact, Equinet analyst Philipp Haessler, who kept a buy rating on Deutsche Bank shares, said.
OTHER BANKS IN FIRING LINE
The Deutsche Bank settlement is part of a larger U.S. government effort to crack down on banks that help wealthy Americans evade taxes and could herald similar settlements with other banks.
This is probably just the start. There are so many banks out there and they all did the same, so it's easy for the IRS. It's just a question of how much information they have, the Zurich tax lawyer said.
Prosecutors last year settled with Swiss bank UBS, which paid $780 million in fines for helping clients with roughly $20 billion in assets hide their accounts from the U.S. Internal Revenue Service.
Leads from the UBS case are pointing investigators to potential criminal behavior by other banks in Asia and the Middle East, the head of the IRS said earlier this month.
Prosecutors are already moving forward with a probe of clients at Europe's largest bank, HSBC Holdings, some of whom received a letter in June notifying them they are the subject of a criminal probe.
The U.S. Attorney's Office in Manhattan said the Deutsche Bank fine represents the fees the bank earned setting up tax shelters, the taxes and interest the IRS could not collect because of the bank's conduct and a civil penalty of some $149.8 million.
Some of the shelters are linked to accounting firm KPMG, which reached a $456 million settlement with the government in 2005 to avoid prosecution on charges it helped wealthy clients set up questionable tax shelters. Two former KPMG officials went to prison.
The IRS has also offered amnesty to wealthy people who declared their assets, and is now using information from some of those taxpayers to build cases against other banks that facilitate tax evasion.
(Additional reporting by Sudip Kar-Gupta; editing by Alexander Smith and Hans Peters)