NEW YORK (TheStreet) -- The code of silence that Swiss banks observe when protecting their clients from financial scrutiny is legendary. And Credit Suisse (CS) CEO Brady Dougan may have hoped that he'd be similarly shielded once U.S. tax authorities started to close in with a rumored $1.6 billion penalty for helping the bank's U.S. clients dodge taxes. No such luck.
From Swiss political parties like the Social Democrats to individual shareholders at a recent company shareholders meeting, the knives are out for Dougan. He is first in line to take the fall for dragging the bank into a complex U.S. Department of Justice investigation that could see criminal charges being pressed.
What has made matters worse for Credit Suisse is that when Swiss rival UBS (UBS) was being charged for similar misconduct in 2009, Credit Suisse's top management was issuing statements ruling out similar problems at their bank. Since then, U.S. Attorney General Eric Holder has only intensified his scrutiny of big banks.
As recently as February of this year, in testimony in front of the U.S. Senate, Dougan sought to deflect the blame for tax dodging onto a small group of company executives. Bizarrely, the Senate proceedings descended into senators and Dougan sparring over how much taxable money Credit Suisse helped its clients hide.Dougan steadfastly maintained that only $7 billion was hid from the Internal Revenue Service, while the Senate's estimate was $10 billion. Did a few billion really seem worth haggling over, given the grave charges involved? Additionally, Dougan seems to have committed the cardinal sin of defying the Senate's expectation that he punish more than just 10 of the 1,800 Credit Suisse staff in the U.S. He might have felt that acceptance of large-scale culpability would have led to his own punishment as well. But he finds himself in the same position a couple of months later anyway. Dougan might also lose his job because of poor performance in his central function -- to keep the bank's revenue and profits headed north. The bank has fallen short on its earnings estimates for three straight quarters now. JP Morgan downgraded the stock to underweight from neutral. Return on equity was just 8%, compared to a target of 15%. While the bank had anticipated the penalty from the U.S. authorities, industry watchers say it is highly unlikely that the bank has set aside the rumored $1.6 billion that they may be penalized. This will make a big hole in next quarter's numbers, and Dougan might find it impossible to dodge the double whammy of poor results and the investigation. Though he has not indicated any desire to let go of his job, on second thought he might appreciate any way to save face and escape the hot seat. This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff. At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
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