Bookkeeping Trickery: Is Credit Suisse Tip of the Iceberg?

The U.S. authorities are accusing Credit Suisse of having improperly manipulated assets under management. Swiss banking however seems to allow considerable leeway in respect to the accounting of assets.

The past has caught up with Credit Suisse (CS), days before Christmas. The U.S. stock exchange regulator SEC is close to launch legal action against the Swiss bank as finews.ch reported earlier this week.

The misdemeanors of CS, already a topic for the Senate, happened three years ago. In 2012, the institute apparently artificially pumped up its assets under management by rebooking customer assets as net new money in the private banking business. CS also tried to obscure assets withdrawn, according to the allegations.

Deceiving Your Investors

Thus CS deceived its investors about a key number, the U.S. authorities say. It won't be easy to calculate and verify the damage done, but the bank nevertheless faces a hefty fine – and it already incurred a reputation as trickster.

Credit Suisse however will – as so often – not been the only one to apply trickery to numbers. Though net new money and assets under management count as key numbers of private banking, there is a certain indifference in how they are accounted for in Switzerland.

Double Accounting Is Legal in Switzerland

It begins with the multiple accounting of net new money: Swiss banking allows each banking unit, which generates fees with the receipt and handling of wealth to claim this as new money. According to regulator Finma, each bank is responsible as to how it accounts for incoming and outgoing assets.

Assets under management may even be accounted for doubly: «Double counts have to be displayed in a table in the annex of the annual financial statement,» Finma told finews.ch.

The auditors of the banks, mandated by the institutes themselves, guard over the Finma rules and the bookkeeping regulations. They are also the ones paid to examine the examinations of the bookkeeping according to Finma.

Pressure on Client Advisers

It seems that the double counting of assets under management and the blurring of outgoing wealth may be systematic in Swiss banking. This system may have been used excessively by bankers under immense pressure to deliver. The U.S. report into the practice at CS suggests that this was the case.

Rolf Boegli (pictured below), who was in charge of CS' business with very rich customers until November 2013 is said to have put enormous pressure on client advisers to book custody assets into net new money in private banking. That way, wealth amounting to billions of francs was shifted around. The banker in an email in February 2012 is said to have claimed that the development of net new money was very disappointing.

Rolf Boegli 500

While the SEC is on a war path, Finma seems unruffled. The regulator doesn't proclaim whether a tightening of rules would be appropriate. When an auditor notices a violation of bookkeeping rules, he reports this to the board of the bank. Finma receives a copy of the report.

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