By Devlin Barrett, David Enrich and Christopher M. Matthews
The U.S. Justice Department is pushing BNP Paribas SA to pay
more than $10 billion to resolve a criminal probe into allegations
it evaded U.S. sanctions against Iran and other countries for
years, which would represent one of the largest penalties ever
imposed on a bank, according to people familiar with the
negotiations.
A final resolution of the yearslong investigation of the French
bank is likely weeks away, and it's possible the ultimate
settlement amount could total far less than $10 billion. BNP is
looking to pay less than $8 billion, according to the people
familiar with the settlement discussions, although a person close
to the bank said its negotiators have never mentioned the $8
billion figure in talks with U.S. authorities.
BNP and the U.S. authorities also remain locked in negotiations
over whether the bank will temporarily lose the ability to transfer
money into and out of the U.S., the people said.
Prosecutors are continuing to try and extract a guilty plea from
the bank and, in recent negotiations, have pointed to the muted
market reaction in the wake of Credit Suisse AG's admission to
conspiring to aid tax evasion as evidence that a guilty plea by BNP
would not be disastrous, according to a person familiar with
prosecutors' thinking.
But the bank's ability to process dollar transactions has
emerged as a sticking point in recent days, according to several
people familiar with the discussions. Benjamin Lawsky, who heads
New York's Department of Financial Services, has suggested a
temporary suspension of its ability to clear U.S. dollar
transactions be included in a final settlement, a person familiar
with the matter has said.
BNP executives are concerned over the possibility the U.S. will
temporarily restrict the bank's ability to transact in U.S.
dollars, according to a person familiar with the bank's thinking.
BNP has multiple businesses--including its investment bank, a
corporate-finance unit and a trade-finance operation--that do many
of their transactions in dollars.
In negotiations with the U.S., BNP executives and their lawyers
have warned that their corporate clients and Wall Street trading
partners have expressed anxiety to BNP about the possible
dollar-transacting restrictions, according to people familiar with
the discussions. BNP officials have warned the U.S. authorities
that imposing such restrictions, even temporarily, could
potentially destabilize the bank, these people said.
Officials from the Justice Department, the Manhattan U.S.
Attorney's office and the Manhattan District Attorney have all
participated in the negotiations.
BNP and prosecutors haven't come to terms on the size of the
financial penalties the bank will ultimately pay. Prosecutors are
pushing BNP to pay more than $10 billion and have expressed the
view that the volume of the transactions BNP allegedly processed in
violation of U.S. sanctions against Iran and other countries could
actually warrant an even larger penalty and that the bank is
already, in effect, getting a discount.
The tab for settling the case has rapidly ballooned. In
February, BNP announced that it was setting aside $1.1 billion to
cover the expected settlement. At the time, analysts regarded it as
a surprisingly large sum. Two months later, BNP warned that "there
is the possibility that the amount of the fines could be far in
excess" of what the bank previously had set aside.
BNP has previously said that its internal investigation into the
matter uncovered "a significant volume of transactions" from 2002
to 2009 that could be "considered impermissible under U.S. laws and
regulations" related to sanctions.
In recent conversations with investors and clients, BNP Paribas
officials have tried to assuage their concerns about a potentially
large financial penalty, according to the person familiar with the
bank's thinking.
They have pointed out that BNP had about EUR90 billion (about
$122.5 billion) of shareholders' equity at the end of March, so it
could easily absorb a multibillion-dollar legal settlement, this
person said. The bank's ratio of equity capital to risk-adjusted
assets, a key measure of its ability to absorb future losses, stood
at 10.6% on March 31, well above regulatory minimums.
In addition, BNP officials have told investors and clients that
as soon as the settlement is completed, the bank can raise billions
of dollars in debt via a public bond offering, this person said.
BNP executives were heartened by Credit Suisse's ability earlier
this month to issue about $5 billion of debt a few days after
pleading guilty to U.S. tax-evasion charges and paying $2.6 billion
to settle the case.
Andrew Grossman and Andrew R. Johnson contributed to this
article.
Write to Devlin Barrett at devlin.barrett@wsj.com, David Enrich
at david.enrich@wsj.com and Christopher M. Matthews at
christopher.matthews@wsj.com
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