It made me smile last November when Patrick Odier, group chairman of the Swiss Bankers Association, observed that “we have an image problem.” Understatement of the century. He was referring to Swiss banking’s Easter Bunny being increasingly redundant since America clipped the wings five years earlier of banks that facilitated tax evaders.
Nevertheless, according to the Economist, Switzerland is still world leader in wealth management, minding US$2.1 trillion (HK$16.3 trillion) in assets. But the game is changing fast. Where should Swiss banks go now? How should they re-invent themselves? In 2009, UBS paid America US$780m (HK$6.05 billion) to halt a tax-evasion probe and when Switzerland’s most venerable bank, Wegelin & Co, vacuumed up many of UBS’s undeclared clients, they were prosecuted. The bank pleaded guilty, paid whopping fines and shut up shop.
UBS handed over thousands of client names to the US authorities, rendering their once impenetrable wall of secrecy more like a colander. The Americans are chasing eleven other Swiss banks, including Credit Suisse and Julius Bär. Germany, the Economist reports, is underwhelmed by the Swiss proposal to levy and pass on penalties for German tax cheats while preserving their anonymity.
The Swiss banks are apparently worried that their government could end up with a muddle of bilateral arrangements, and presumably very confused clients. Switzerland’s offshore private banking used to be highly profitable too, but that’s also looking uncertain. Previously they could charge twice as much as British banks, apparently, because they could massage some of the tax savings on undeclared funds into their fees. Not any more. So Swiss bankers are at the cross roads.
What Lies Ahead?
Consolidation probably lurks around the corner for Swiss banks, with smaller banks unable to go it alone. After the Swiss Easter bunny vanished back into his hole in the bank, Asia’s private-banking centres, particularly Singapore, were expected to pick up the slack. But interestingly, they haven’t, the Economist says. The share of wealth of European origin managed in Singapore and Hong Kong has gone up by only one percentage point in the past three years, to 8-9% of the total, according to BCG. But the Asian offshore centres are doing fine without funds from Europe.