Wegelin guilty plea rattles Swiss banks Ever since US prosecutors brought criminal charges against Wegelin in early 2012, the demise of Switzerland's oldest bank has been little more than a matter of time. Yet when the end finally came last week - after the 272-year-old bank pleaded guilty to helping American citizens avoid taxes on assets worth $1.2bn between 2002 and 2010 - it still sent shockwaves through Switzerland's banking sector. As well as agreeing to pay $57.8m in fines and restitution to the US authorities, in its guilty plea one of the bank's managing partners, Otto Bruderer, also set out why Wegelin had continued with activities that it knew were wrong. First, he explained, the St Gallen-based bank had no branches in the US and believed it was in compliance with Swiss law. Second, he added, "such conduct was common in the Swiss banking industry." The appearance of this claim in a court document has alarmed Swiss bankers. With a bevy of regulators in the US probing at least 10 further Swiss banks - including Credit Suisse, Julius Baer, Zürcher Kantonal Bank (ZKB) and HSBC's Swiss subsidiary - it raises the question of how severe the US treatment of other Swiss lenders will be. US authorities have certainly shown no sign of flagging. Three weeks ago, they charged two bankers and one former employee of ZKB with helping US citizens hide $420m of assets from the US Internal Revenue Service. "I don't believe it is finished yet," says Teresa Nielsen, an analyst at Bank Vontobel, which is not itself being investigated. Legal observers take a similar view. Wegelin's claim about the common nature of its conduct will add fuel to the efforts of US regulators, reckons Joseph A. DiRuzzo III, a senior associate at Fuerst Ittleman David & Joseph, a US law firm. "The US authorities will use it to at least attempt to bring down the Swiss system of bank secrecy," he says. This case is likely to be followed by more. However, Swiss bankers are at pains to play down parallels between Wegelin's case and those of the other lenders under investigation. "There are 11 individual cases," says a spokesman for HSBC's Private Bank. You cannot draw conclusions from one to another. ZKB takes a similar line. "The settlement between Wegelin and the US authorities has no impact on the current investigations," the bank says, adding that it was co-operating with regulators and expected to reach a settlement without a trial. Precisely how unique Wegelin's activities were is hard to gauge. The bank, which was founded in 1741, found itself in prosecutors" crosshairs after it sought to win clients who fled its rival UBS after it emerged that Switzerland's largest bank was itself under investigation for helping US citizens avoid taxes. The involvement of Wegelin's senior management in this decision, and the bank's persistence with its strategy even after it was clear that UBS was under investigation particularly riled US authorities. But the Wegelin indictment suggests that other banks were also receiving illegal funds at this time. Indeed, Switzerland's banks are preparing for bad news. Credit Suisse set aside SFr295m in November 2011 to cover a potential settlement. Julius Baer has also conceded that it is likely to face a fine, although it has given no indication of the size. The bank is confident, however, that it has the resources for a resolution. For the moment, however, further settlements are being held up by US demands for client names from cases from before 2009, which cannot be provided under Swiss bank secrecy laws. Washington and Bern have been negotiating over a compromise solution, but have so far failed to find one. One chink of light for the Swiss banking sector, suggests Mr DiRuzzo, is that future prosecutions of banks are "more likely to result in civil cases or deferred prosecution agreements" than in criminal charges. There are systemic issues - such as capital flight, and the impact on capital adequacy - associated with criminal cases against banks. The entity tends to go under," he says. If individuals have taken actions that the DoJ considers illegal, however, they are still likely to face criminal charges. If intergovernmental negotiations between Switzerland and the US fail to make headway, however, banks could slip back into the firing line. And in meantime, the uncertainty spawned by the investigation is doing Switzerland's banks - particularly the smaller ones - no favours. "We need a universal settlement," says one banker. "Until we get that, the whole saga will continue to hang over investors, hang over banks" share prices, and hang over relationship managers who are trying to attract new customers."