Closed As it happened: Credit Suisse Senate hearing

Credit Suisse executives testified before the US Senate Permanent Subcommittee on Investigations in what was at times a contentious hearing over allegations of tax evasion.

A scathing report from the subcommittee on Tuesday said that Credit Suisse made false claims in US visa applications, conducted business with clients in secret elevators and shredded documents to help more than 22,000 American customers avoid US taxes.

Credit Suisse chief executive Brady Dougan disputes the report’s claims, saying the bank conducted an expansive internal investigation, shut down client relationships and required US customers to prove tax compliance.

Gina Chon, US regulatory correspondent, reported from Washington and Shannon Bond from New York

As we wait for the hearing to get underway, here’s what to expect. Senator Carl Levin, chair of the subcommittee, said that they will have 50 exhibits. That follows the 175-page report the subcommittee released on Tuesday.

Levin said the subcommittee’s two-year investigation culled through 100,000 documents, held over 40 interviews and briefings, and there are about 900 footnotes in its report.

Carl Levin is giving his opening statement. He says the American public “is angry about offshore tax abuse”.

Levin cites the past work of the Permanent Subcommittee on Investigations (PSI) on UBS, saying the bank helped 52,000 US customers hide $18bn in assets.

After the justice department got a deferted prosecution agreement with UBS, the bank turned over 250 secret Swiss accounts with US client names and “coughed up” more accounts later for a total of 4,700 names.

Levin said UBS’s “breaking of Swiss secrecy also signaled a seismic shift.” He adds that the era of bank secrecy is not over, despite the claims of G20 world leaders.

Levin now turns to the justice department, saying the battle to collect those unpaid taxes “seems stalled.” Progress has been “uneven and halting.”

Now Levin goes to Credit Suisse, saying the subcommittee began looking at it after UBS. Levin said Credit Suisse had been “holding back” about how bad the problem was at the bank.

He mentions evidence the subcommittee released yesterday, including a branch at the Zurich airport where Credit Suisse held secret accounts.

Levin describes Credit Suisse clients being ushered into remote-controlled secret elevator and then escorted into a bare room with white walls to dramatise the bank’s focus on secrecy.

Levin said Swiss bankers made more than 170 trips to the US from 2001 to 2008 to court new clients and serve existing accounts, hosting tables at the annual Swiss ball in New York.

Levin mentions a detail a lot of journalists grabbed on to yesterday – Credit Suisse banker slippping a client bank account statements hidden inside a Sports Illustrated magazine.

He also said some bankers lies on their US visa applications, saying they were going to be tourists when in fact they conducted business.

Levin again says enforcement action against Credit Suisse has “stalled.” None of the seven bankers indicted have faced trial or are subject to US extradition requests.

“But getting names is where this whole story goes bust,” Levin says. He now shows a pie chart with the 22,000 US Credit Suisse customers in red, and a small green sliver showing the paltry amount of names that the justice department has gotten – about 1 per cent.

Levin also goes after the Swiss government, saying it inserted itself into the criminal investigation to stand between the bank and DoJ.

Credit Suisse and DoJ say the Senate has to pass a protocol to a tax treaty between the US and the Swiss government for all the information to be handed over.

Still, Levin blames the DoJ for not using all the legal tools available, saying getting only 238 names out of Credit Suisse is an “embarrassment”.

Levin is on a roll. He says “the Swiss roadblocks didn’t end there,” saying the government insisted on a “less restrictive disclosure standard” for information requests and US negotiators went along.

In 2012, the Swiss passed legislation to erect another roadblock, saying to get the names of US clients of Swiss banks, a US treaty has to establish that the bank “significantly contributed” to the pattern of misconduct.

Levin said it goes to the pattern of Swiss government relying on Swiss bank secrecy laws to make billions.

“It’s still a rigged game,” Levin says.

No one is exempt from the subcommittee’s criticisms, except maybe the Senate, which has yet to pass the protocol to the tax treaty.

After DoJ overcame Swiss secrecy obstacles to obtain 4,700 names in the UBS case, many predicted Swiss secrecy woudn’t impede US prosecutions. Clearly Levin doesn’t think that has happened, however,

But he says it’s not too late. DoJ can still use grand jury subpoenas, John Doe summons and US indictments to get US client names.

He says DoJ should make extradition requests and “test” Switzerland’s professed willingness to cooperate with the US.

Levin says tax evasion deprives the honest American taxpayer of fairness. US clients shouldn’t be able to cheat Uncle Sam, he says.

Levin wraps up his remarks, and thanks the top Republican on the committee, John McCain. Levin is retiring, which should give banks a sigh of relief.

Now it’s on to John McCain, the Arizona senator, who calls the situation “disturbing.”

McCain says Credit Suisse succumbed to the charms of compensation over compliance, with the bank making money by helping US clients avoid US taxes.

He calls the bank’s actions “egregious,” and also mentions “remote-controlled elevators leading to hidden rooms.”

McCain reiterates the visa applications – instead of sightseeing, bankers met with clients. One bankers also went to the wedding of a client’s child, and used the occasion to conduct business.

McCain says the actions belong in a “spy novel,” not in one of the top Swiss banks.

Even today, the bank must answer for “decades” of ill gotten profits, McCain says. He mentions Credit Suisse’s SEC settlement for $196m reached last week. But he says that amount pales to what the bank has done and regulators shouldn’t give banks a “free pass.”

McCain also goes after DoJ, saying the agency “willingly gave up”. “Facts are stubborn things,” he says, with no subpoenas recently issued.

He also says DoJ has failed to prosecute on the indictments it has gotten on Credit Suisse. Instead, DoJ has played the diplomat, negotiating a program that allows banks to voluntarily disclose information without having to worry about prosecution.

McCain estimates the US lost $337.3bn due to tax evasion, the largest amount in the world.

McCain has wrapped up. Levin says it’s been a lengthy investigation, taking over two years, and thanks Senator Tom Coburn, who used to be the ranking member of the subcommittee.

Now it’s Coburn’s turn. He cites great disappointment at DoJ, especially leader of DoJ. He doesn’t mention Eric Holder, US attorney-general, by name, but says he doesn’t take his job seriously. Ouch.

Surprisingly, Coburn thanks Credit Suisse leadership for admitting culpability and coming to testify.

The first panel will kick off with Brady Dougan, Credit Suisse chief executive. As James Shotter wrote in today’s FT, he is one of only three chief executives of global banks who have managed to stay at the helm throughout the financial firestorms of the past five years.

Although Credit Suisse avoided the subprime-related meltdown that befell its local rival UBS, and did not need a state bailout, the bank has still had to contend with sluggish markets . It has also had to deal with a welter of regulation that has made many once-profitable areas of investment banking uneconomic.

Mr Dougan, an economics graduate who joined Credit Suisse in 1990 and headed its equities and securities businesses before taking over as head of the whole investment banking division in 2005, has responded by rebalancing Credit Suisse so that its private banking arm is on a par with the investment banking division in terms of importance.

Read more here.

In addition to Mr Dougan, three other Credit Suisse executives will testify. UBS C-suite executives didn’t testify in front of the subcommittee.

Levin says the second panel of DoJ officials have to go to the White House so that group’s hearing may be delayed to later today.

He expects the first panel of Credit Suisse executives to go til at least 12:30pm.

The panel is sworn in and Brady Dougan begins his statement. He gives some background on Credit Suisse, saying it has 9,000 employees in the US. He says he’s the first American CEO of a major Swiss bank and emphasises the banks “deep roots” in the US.

Now Dougan goes into his defense, saying Credit Suisse has been a leader in pushing transparency. Other Swiss banks have disagreed. But he says it’s simply not acceptable to Swiss-based bankers to help US clients hide taxes.

He also mentions Credit Suisse’s support of the Foreign Account Tax Compliance Act, and again says that other banks opposed it.

He cites the bank’s support of the protocol to the tax treaty between the US and Swiss governments. He says Credit Suisse wants to provide all the information but has been hindered because the tax treaty has not been approved by the Senate. He urges the body to pass it.

It’s worth nothing that the Senate Foreign Relations Committee is holding a hearing on the protocol to the tax treaty this morning.

Dougan goes over Credit Suisse’s “significant and complex” remediation efforts. The bank also hired many outside lawyers and accountants.

But despite its efforts, he says, the bank has had problems with a few bankers. He said an internal investigation showed a small group of private bankers went to great lengths to hide their activities.

He says Credit Suisse “regrets deeply” that it had a few bankers who “appeared to have violated US law.” He takes responsibility. He said it’s been the highest priority to get this fixed, to get it right.

Now Credit Suisse general counsel Romeo Cerutti is up.

He says before 2008, like other Swiss banks, Credit Suisse viewed tax compliance as a matter between the taxpayer and its government. He said that was a mistake and left the bank vulnerable.

But he says since then, Credit Suisse has changed its ways. He said one of the drivers of change was the Senate subcommittee, a nice touch.

Cerutti says Credit Suisse believed that its clients were tax compliant, and the bank was wrong. But he says the bank has taken a number of steps to “face up to its past.”

Credit Suisse sources have said this is a legacy issue of Swiss banking, and the bankers who were responsible have left the firm.

Cerutti also urges the Swiss parliament and the US Senate to approve the protocol to the tax treaty. He says Swiss lawmakers did several years ago but not the US.

Cerutti mentions that Credit Suisse has become FACTA compliant ahead of time as evidence of its efforts. He says when we make mistakes, we take responsibility and the last five years have been an important “wake up call” for the Swiss private banking industry.

Now up us Hans-Ulrich Meister, co-head of private banking at Credit Suisse.

He also admits that some Swiss bankers and US clients hid assets to avoid taxes, which he says is “totally unacceptable.” He also cites reluctance from others in Switzerland, but says that Credit Suisse believes it’s important to address it.

He cites Credit Suisse’s efforts to ensure their clients are tax compliant. He also says the private banking industry worldwide has been going through a change to improve transparency.

That was on the short side. Now it’s Robert Shafir, the other American besides Dougan testifying. He is co-head of private banking.

He says Credit Suisse’s executive board has a constant focus on compliance. And he mentions the tax treaty and FACTA. Those two items seem to be on the list for all the Credit Suisse witnesses.

“I’m not suggesting we get it right every time,” Shafir says. But the management is focused on ensuring that the bank is complying with laws and internal policy. He also mentions he’s the first American co-head of private banking.

Now the real part of the hearing begins: the questioning of witnesses.

First up is Levin, the subcommittee chair. He asks if the approval of the tax treaty would help in getting the names of clients for whom accounts were closed. Mr Cerutti says no.

Levin still says Credit Suisse is hiding behind Swiss secrecy laws, saying that is an excuse.

Levin asks Dougan if they agree with those laws. Dougan says the bank wants to provide all the information but it has to abide by two legal jurisdictions and can’t break the law in one of those regions.

Levin says he hopes the treaty is approved but it has its limits. He sounds a bit defensive, saying Credit Suisse hasn’t given up enough names and the US has to enforce its own laws.

Levin is getting worked up. He says you come to this country, set up an office in the US, help US customers hide from US authorities. And now the jig is up. He says Credit Suisse is abiding by Swiss laws but they don’t apply in the US.

Levin asks whether Credit Suisse urged the Swiss government publicly to change its laws so it can cooperate with the US. After some back and forth, Dougan says yes we have.

Levin is really focused on getting the names, saying the treaty and other aspects won’t help. He asks again on whether Credit Suisse has asked the Swiss government to allow it to hand over names.

Now Levin asks about what Credit Suisse has produced after indictments. Cerutti says the bank handed over some information but not all of it, citing Swiss secrecy laws.

Levin cites a provision that puts US law above international law. But instead, DoJ went with treaty requests.

Cerutti said he’s convinced that if the current protocol to the tax treaty is approved, Credit Suisse could hand over “thousands” more names.

Levin said it’s Swiss courts that denied the US from getting the names. It seems Credit Suisse is left defending itself, in addition to having to answer for Swiss government.

Levin again says DoJ is taking a “totally unacceptable” position.

Now McCain is up to ask questions. He asks Dougan if at its peak, Credit Suisse had 22,000 US clients with accounts totaling as much as $12bn. He also asks for confirmation that Credit Suisse has handed over only 238 names. Dougan answers yes to both.

McCain says that’s only a “miniscule” amount. Cerutti says Swiss laws prohibit the bank from providing client names, and violation is subject to imprisonment and fines.

McCain says any idea that the Swiss government is cooperating “is a joke.”

McCain asks how much profit Credit Suisse made on the US client accounts. Dougan says this was a very small business, less than 1 per cent of profitability of the global bank.

Dougan says of that $12bn in assets, $5bn were fully tax compliant. Another $2.2bn was determined not to have US taxpayer connection.

McCain says Credit Suisse still made a good profit, even if it’s a small percentage.

McCain says how many officers have you fired? McCain said yesterday that executives had to have known, and even if they didn’t, they are responsible.

Dougan says the bank has been shutting down the business. He adds that many were fired as a result.

McCain turns to Meister – co-head of private banking – mentioning an office at Zurich airport Credit Suisse used to facilitate tax evasion. Meister told subcommittee staff that he was unaware of that office.

Meister says at that time, he had just taken over so he wasn’t aware then. But now he knows there were 7 or 8 bank relationship managers with about 10,000 accounts.

Dougan says the Zurich office was there for “convenience” of customers so they didn’t have to leave the airport. McCain quips: “it certainly was.”

McCain asks how Credit Suisse could have cleared the desk where bankers conducted this activity when the DoJ later indicted bankers. Cerutti said their investigation didn’t find anything initially but that was a mistake.

Coburn is up. He asks Dougan about Credit Suisse’s internal investigation.

Dougan says the bank has constantly updated lessons learned on compliance. But, he says, there was no formal report to the board, in response to Coburn’s question.

Dougan said in his 32 years, he hasn’t seen an issue that has taken up as much resources and time. The board also discussed it almost every week. But he says it wasn’t unusual to not have a report.

Now Coburn asks about tourist visas to raise business and whether there was one individual who promoted that.

Dougan says it was a group of about 15 bankers. He said managers were the one who orchestrated the visas but didn’t see knowledge of that from people above them. He adds that those bankers were indicted, and calls it a “small focus group.”

Coburn asks if DoJ implements all the indictments necessary, would Credit Suisse comply?

Cerutti says Credit Suisse would then be indicted in Switzerland so it would be difficult. He again cites the treaty, saying approval would lead to the release of many more account names.

Coburn asks what about facing prosecution in the US for not complying with US laws. He notes Credit Suisse faces “double jeopardy” and asks where “you would like to spend time?” Cerutti sheepishly says it’s a difficult decision.

Coburn also asks about whether employees were fired. Dougan said there were no systematic abuses.

Coburn asks how many non-compliant accounts were identified. Cerutti said Credit Suisse identified 6,678 that were compliant, so the 22,000 clients that the subcommittee has cited is too large of a pool.

Coburn said if policy today is that US clients have to be tax compliant, the amount of assets under management shouldn’t matter.

Dougan says top priority was to verify that all the accounts were tax compliant. But he said the bank just shut down some businesses, shrinking its footprint by 80 per cent.

Cerutti says Credit Suisse is working on being tax compliant with FACTA, so looking at US citizenship records and other matters, in response to a question by Senator Ron Johnson.

Johnson asks about the difference between the 238 names that the US has gotten versus the others. Cerutti said the Swiss make a distinction between tax fraud and tax evasion. The 238 accounts were found to have connections to tax fraud.

So far, Cerutti has had to answer more questions than Dougan. That’s what lawyers get.

Johnson actually asks a question of Meister. He asks how important Swiss banking sector is to Swiss economy.

Now Johnson asks why a US investor would put money into a Swiss bank and asks whether they’ve had larger returns than British banks. Not sure where he is going with this.

Johnson also notes $12bn is a small amount compared to Credit Suisse’s entire business. He actually seems to be talking about US customers, not investors, asking why they would choose a Swiss bank over others.

“Why do people put their money in Switzerland?” he asks. “Let’s state the obvious.” He seems to want them to cite Swiss bank secrecy laws.

Dougan said obviously, there has been historically been an ability to shelter assets from taxes.He said that shouldn’t be any Swiss bank’s business model and it won’t be an advantage that Swiss banks will have any longer. Instead it will be about offering superior service.

Johnson said it’s important to get that basic reality out there. He thanks Dougan for citing that reason.

Levin says you may be in the same place but the Swiss government isn’t. He also says your bank is arguing you can’t cooperate because of Swiss laws. Again says Credit Suisse is hiding behind Swiss laws even though the bank is operating in the US.

And the troubling thing is DoJ is going along with it, Levin adds.

“I understand the whole business of treaties and I know the hole in the treaties,” Levin says just as Dougan was going to mention the treaty again.

Levin says Swiss law still requires going through hoops in providing names of people hiding assets to avoid taxes. Levin asks if Credit Suisse would be prosecuted and convicted by the Swiss government. “Is that your fear?”

Cerutti says yes.

Levin says, yet you want to do business here.”You want to do business here, you’ve got to comply with our laws.”

Levin refers to the bank’s “so-called” investigation. Levin says he doesn’t understand how there can’t be a written report. Dougan says there have been a number of reports but not one summary report.

Levin and Dougan are going back and forth on whether the subcommittee has asked for the reports that have been written. Cerutti said it has shared conclusion of investigation but it hasn’t shared the reports, some of which are confidential.

Levin asks for a list of the reports and why they haven’t been shared.

Levin asks whether banker traveled to US to drum up business. Dougan says yes, with a limited group of bankers. It also found some conversations showing bankers tried to structure transactions below $10,000 so they wouldn’t have to be reported.

Dougan says the bank also saw activity outside potential arrangers, in response to Levin’s question about bankers helping clients create offshore shell corporations to avoid taxes.

“I view that just as egregiously as you do,” Dougan says. Levin replies: who was fired for that?

So was anyone fired? Dougan says he believes those people don’t work for the bank anymore. But Cerutti says he doesn’t know of anyone fired specifically for the actions Levin cited.

Dougan tries to recover, saying Credit Suisse shut down a bulk of its businesses and by the time it found the wrongdoing, most of those bankers were gone.

Johnson goes back to his line of questioning of why people put money into Swiss banks. Dougan says they have an interest in diversifying their jurisdictions of where they hold their money.

Dougan says there is no other way but for Credit Suisse and other Swiss banks to be transparent and ensure tax compliancy.

Johnson says he may be going to the treaty hearing later, asks Cerutti how it could be improved to close loopholes.

Cerutti says it’s a pretty good treaty because it’s based on OECD standards on tax evasion. He said what Levin is afraid of is that IRS would have to prove bank misconduct to obtain information, but said so far under the DoJ programme of voluntary disclosure, they have already gotten a lot of names.

Dougan says the bank could provide “vast bulk” of information if the treaty was approved.

Credit Suisse executives Brady Dougan, chief executive, Robert Shafir and Hans Urlich-Mesiter at the start of the hearing

Cerutti says Foreign Account Tax Compliance Act is a huge administrative project. The bank has spent $100m to implement FATCA legally.

Levin says he now wants to get a few facts down firmly.

He goes back to the 22,000 customers, saying 18,900 have been closed with the rest being compliant.

Cerutti says those numbers are correct today. He adds that they found more than 6,000 were tax compliant, but half those accounts were closed.

Cerutti said a large population of US clients who had assets below $1m were not given the option to stay because they needed $1m as a minimum balance. So a lot of them didn’t have opportunity to prove tax compliance.

Levin, the subcommittee chair, is now the only senator left in the room.

Levin is trying to pin them down on Credit Suisse’s SALN office, whose bankers were trained on US regulatory and tax practices. He is trying to show how widespread the practice was.

He says 1,800 bankers had one or more client accounts, citing the number of bankers the subcommittee believes was involved in the tax evasion scheme.

Cerutti said they should exclude retail bankers, leaving around 800 bankers.

Levin asks whether the remaining bankers were trained properly, and Cerutti said yes.

Levin says it can’t be easily explained by rogue bankers in SALN office. Dougan said the bank has done an extensive investigation in whole bank, but it didn’t find any misbehaviour elsewhere.

So all the abuses were concentrated in SALN, Levin wants to know. Dougan says yes.

But Cerutti says most of the issues were at SALN but some misconduct took place elsewhere. Perhaps this reflects a difference between how a lawyer sees an issue versus a chief executive’s perspective.

Levin says Credit Suisse has to look in the mirror to solve the problems.

He’s still concerned over the conflict between Swiss and US law. He asks whether Swiss laws will get repealed if the tax treaty is approved, pointing to problems with Credit Suisse’s answers.

Cerutti says the treaty would allow the bank to give the US the names in question.

Levin says the problem is that the US has to prove the bank “aided and abetted” to get the names. Does Credit Suisse think the new treaty will solve that?

Cerutti says half of the accounts in question went to other Swiss banks, so the US would have to make a treaty request at those banks.

There are lots of treaties needed to solve this, it seems.

We’re back to what seems to be Levin’s biggest frustration. Cerutti said the Swiss legal system won’t let the bank provide the names.

Levin responds: then don’t say the treaty will provide the names. He says the treaty will be helpful but it won’t produce all the names the US needs because of the burden of proof on the US to show the banks “aided and abetted.”

“It’s a chicken and egg problem.”

Cerutti says the DoJ’s programme for voluntary disclosures will produce names from banks, including Credit Suisse.

The programmes are part of the DoJ’s efforts to pursue banks helping US clients avoid tax evasion.

Levin goes back to the problem of not getting the names, saying that is the heart of the issue – tax collection.

A pause as Levin looks over his notes.

Levin tells the story of “Client 1,” who opened an account at Zurich office. He told the subcommittee that a Credit Suisse banker told him that an IRS W9 form was not required by the bank. Levin asked if that facilitated tax evasion.

Dougan said that is something they would not undertake today, noting that the client opened his account in 1990.

Cerutti explains that a W9 was required for clients wanting to purchase US securities and the bank was very strict about that – but not if they were not buying US securities. With FATCA, that loophole will be closed.

Levin turns to travel records. Swiss bankers took to 150 trips to the US while the subcommittee uncovered about another 20.

Cerutti says it was allowed only for social purposes, and said unfortunately, some staff cited social purposes to go to the US to conduct business. Credit Suisse is sticking to its explanation that it was bad behaviour by a limited number of bankers.

But Levin said the bank paid for 24 trips, saying Credit Suisse required bankers to file travel reports after trips. He mentions Markus Walder, former head of North America offshore banking, who was indicted in 2011.

Levin cites another report in which a banker said he visited 49 clients with assets of $230m, and asks why the bank approved it and violated its own policy.

“It should have been stopped,” Dougan says.

Levin again questions Dougan’s assertion that this was done by “rogue bankers.” Dougan said the people above them who approved the reports were misled.

“They were wantonly violating our policies,” Dougan says of the bankers who traveled. “They were violating the policy and hiding that from their management.”

Levin says this doesn’t look hidden to him, “its pretty obvious.” He cites the travel report exhibit that cites dinners, preparations for meetings. Dougan says “I couldn’t agree more.”

Levin pulls out an important phone number list kept at Credit Suisse’s New York office. He refers to two entries who are external trust experts who were indicted for aiding and abetting US taxpayers. Levin asks whether they were used to help Credit Suisse clients avoid taxes. Dougan says yes.

Levin asks what other intermediaries that the bank worked with to help US clients set up offshore shell entities.

Cerutti has to check with the staff seated behind him. He finds out there were others – perhaps three, he says – but he can’t give their names because of Swiss laws.

Levin says that once again, Swiss laws are preventing US authorities from doing their jobs. “Is this going to be cured by the treaty?” Levin asks.

Dougan said this won’t be an issue because it will be fully compliant.

Cerutti says he’s just been informed that DoJ has the names of the three other intermediaries that the bank worked with to help US clients set up offshore shell entities.

Levin says that’s good.

Two dozen Swiss bankers have been indicted by DoJ, including seven from Credit Suisse. Levin wants to know if the executives know of any extradition requests. Cerutti says no.

If the US made an extradition request, would Credit Suisse object? Dougan says no.

Levin notes that as far as he knows, there have been no extradition requests yet.

Last area Levin turns to is net new assets, which the subcommittee said the Credit Suisse didn’t fully recognise. Levin says it’s a key performance measure of growth of the private bank. He cites “client number five”, whose business contributed to net new assets.

Levin says Credit Suisse told the subcommittee it found evidence of possible inappropriate influence on net new assets. Cerutti said that is correct and that there were some emails involved.

Cerutti says the bank could give the subcommittee a summary of the emails but it can’t give the actual emails because of Swiss data laws.

Cerutti said the law firms Credit Suisse has hired so far have said there is no indication that the numbers weren’t accurately stated. But he asks for time for them to work on it.

He’s starting to sound frustrated. Levin says “it’s ok,” if he hasn’t talked to the lawyers yet about it, he can say so.

Cerutti checks with other lawyers, and says Levin might be referring to “internal scorecards” versus what has been publicly stated.

Dougan steps in to say there are some management numbers that might be different from what has been publicly reported because of internal reporting methods.

Levin cites an email from a Credit Suisse executive saying net new asset results have been disappointing and that all possible measures need to be taken to change it into a positive story.

Meister speaks up to defend the email, saying it’s a normal process to review the numbers.

But Levin said that accuracy was not the intention. Dougan steps in and said he agrees with that and the language isn’t consistent with the way bank thinks about reporting net new asset numbers.

Levin cites another email from December 2012 that said Credit Suisse wealth management needed another 3.5bn Swiss francs to meet its goal.

Meister says the language of the email is not what the bank would want to use, but adds that it was normal to look at that issue before the year end. Shafir, who hasn’t really spoken since his opening statement, steps in and says it would be similar to wanting to hit a sales target.

Levin now says client five was shifting assets at a time that net new assets was under pressure. He said when client five contributed to net new assets, the bank had decision of what region should get credit for it.

Levin says Meister decided to split it 50-50 between Americas and Switzerland.

Levin says in first quarter NNA for client five was split 60-40 between Americas and Switzerland. Meister says he doesn’t know why. Then it was fully credited to the Americas, and Meister said he didn’t know why that was done.

Levin cites another instance when it went back to Switzerland’s credit, which was done retroactively. He said that made Switzerland’s net new assets look a lot better. Meister agrees.

Dougan says they are trying to report more granularly and trying to show the accurate numbers. Why it was reported with shifts in other quarters will be examined.

Shafir steps in saying it was clear that several people were responsible for winning mandates for client five, so it wasn’t unusual from that point of view.

Levin said the problem was shifting around the credit. Dougan agrees that is a problem, but said it’s not a big factor that investors focus on.

Levin finds this hard to believe. “Are you serious?”, he asks.

Dougan said it’s a factor but not a big factor. But he adds it shouldn’t be manipulated and should be accurately reported.

Meister said they are not shy to show negative numbers for Switzerland, citing a few quarters in which it did so.

Meister again says “we are not shy” before Levin cuts him off saying “you are not shy now because maybe you don’t have the opportunity.”

Levin cites Credit Suisse reference to “external number” on NNA versus what was known inside. Dougan says that’s a common aspect used as incentives for staff for how internal numbers are calculated versus the financials of the pubic numbers.

Dougan says its done every quarter on NNA. Levin asks which is more accurate. Dougan says I wouldn’t know how to answer that, noting internally there are other rules to motivate staff.

Levin gets back to his central point: the discrepancy between Credit Suisse’s internal numbers – showing Swiss NNA “massively down” – and the public figures, showing it on the upswing.

“You may call it a detail, I call it something investors would look at. Presumably they care if your bank is profitable,” Levin says of the NNA numbers.

So is Credit Suisse going to change any of its procedures that have resulted in divergent internal and public numbers, Levin wants to know.

It’s premature to say anything but they are examining processes, Dougan says.

Dougan says he and Levin will have to disagree on how important the issue of NNA is to Credit Suisse investors. Our Lex colleagues have also weighed in on whether shareholders should be bothered by the US probe into the bank:

There are plenty of reasons for investors to cringe. First, not all publicity is good publicity. The furore will not endear the bank to existing and potential US clients.

Read more here.

Levin is hammering again on the language of the emails discussing NNA. One refers to giving an “enhanced story”.

Dougan suggests that story doesn’t necessarily indicate something made-up, but acknowledges that the email was not the way the bank should be operating.

Levin : “If these are examples of your process at work, then you have real problems.”

“Not language that I think is appropriate,” Dougan says. He says he wants to get to the bottom of this.

Levin wraps up, acknowledging that it’s been “a long hearing” and thanking the executives for their participation. The hearing will resume at 3pm with two justice department officials.

He leaves Dougan and his colleagues with the admonishment that if Credit Suisse “is really going to be a reformed bank” and not abet tax evasion, then it must have to acknowledge what the subcommittee’s report found: that the problem went beyond a small group of bankers.

“We need your cooperation,” Levin says, and reprimands Credit Suisse for “hiding behind the shield of Swiss laws”.

“If you do banking in this country you have to abide by our laws…You have to take on your government.”