Credit Suisse Gives $5 Billion Justice Department Settlement A Hard Pass

Credit Suisse could pay the massive fine – or, like, not.
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Let's say you're a major European bank still facing a multibillion-dollar fine over subprime-era mortgage misdeeds. At this juncture, you have two options. First, you can settle with the Obama Department of Justice, whose approach has favored big, eye-popping settlements in lieu of individual charges, with the possibility of not having to admit guilt.

Alternatively, you can hold out a month longer and see what happens under a Trump administration, which is essentially a giant question mark. The free-market conservative tilt of Trump's cabinet appointments could signal a DOJ ready to retract its claws. But it's equally conceivable that the Trump DOJ cranks up the populist-nationalist dial to 11.

Intentionally or not, Credit Suisse seems to be edging closer toward the latter tactic. The bank rejected a deal that would have levied a $5 to $7 billion penalty in exchange for settling mortgage-related charges with the DOJ, Reuters reports.

The size of the suggested settlement indicates that the cost to the bank may be higher than analysts had expected and explains why Credit Suisse management has been pushing for a smaller penalty.

"Credit Suisse is confident of reaching a better solution," said the person with knowledge of the discussions. Should talks break down, U.S. legal authorities could sue the bank, prolonging the uncertainty.

So maybe Credit Suisse doesn't actually want to risk a Trump settlement, just a better bargain.

One might imagine a Trump DOJ to act in line with the libertarian bent of his appointments so far. But there's no guarantee that Trump's Attorney General pick Jeff Sessions, should he be appointed, will be a friend to banks. The Alabama senator has a strong populist tendency, sometimes calling the Republican donor class as “Masters of the Universe.” In 2014 he addressed a Tea Party gathering on the topic: “We can tell Wall Street, ‘We love you’…but we’re going to be representing Americans by the millions.”

That doesn't necessarily translate into Justice Department policy, but it is a clue.

Altogether it seems the European banks still facing DOJ fines seem to prefer the devil they know to the one they don't. Even troubled Deutsche Bank – Trump's largest creditor – is reportedly itching to settle up with the DOJ before the new administration comes to town.

Deutsche Bank could this week agree its penalty over the sale of toxic mortgage debt, one person with direct knowledge of the matter said on Monday. The bank has said it expects to pay materially less than $14 billion.

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