Monday, April 18, 2005

Bad News for Swiss Banking

The LA TIMES headlines today are taking a look at swiss banks. Government officials have said it for a long time: Swiss banking laws have become tough. The result: Clients go elsewhere.

Swiss Banks No Longer Have It All Locked Up
Generating new money in Switzerland has been like falling off a log for decades. Times change.

By Haig Simonian, Financial Times

ZURICH, Switzerland — The names may differ, but the style remains the same. Marble halls, lifts that transport clients without pressing any buttons, anterooms and taciturn flunkies serving refreshments: Welcome to the world of Swiss private banking.

It is a model that has worked for decades, centuries even, as foreign potentates, politicians and the plain rich have sought a haven for their wealth.

But recently, behind the immaculate facades, signs have emerged that confidence may be slipping. Data are hard to find in an industry noted for discretion. But what evidence there is suggests that Switzerland, once a byword for private banking, is no longer casting its special spell.

The oldest and most traditional banks, such as Pictet and Lombard Odier Darier Hentsch in Geneva, still bear the names of their founding families. Tightly run by partners bearing unlimited liability, they are under no obligation to publish figures.

Others, such as Zurich's Julius Baer and Vontobel, or Basel-based Sarasin, must be more forthcoming. Though still dominated by founding families, their decisions to issue shares have required more transparency.

Deposits at Sarasin rose just 416 million Swiss francs last year, a mere 1.3% of the 30 billion francs under management. At Julius Baer, a relative upstart tracing its roots back only to 1890, clients actually withdrew 800 million francs, on balance. Nearby Vontobel attracted a net 200 million francs.

"It is difficult to generate new money in Switzerland," said Herbert Scheidt, Vontobel's chief executive.

Even UBS and Credit Suisse Group, the giants of Swiss banking, are struggling at home.

The reasons the flood of foreign money has turned into a trickle lie in tougher controls at the banks and changed attitudes among customers.

New laws on money laundering have eliminated Switzerland's former attractions as a destination for illicit, or just undeclared, money.

Declining personal tax rates in Europe have also reduced the fiscal incentives for stashing money in Swiss accounts. Italy, Belgium, France and Germany have even introduced amnesties to entice wealthy citizens to repatriate funds.

Holding money in Switzerland will become even less appealing after a savings tax on some assets takes effect in July.

Clients, meanwhile, have developed different priorities from the days when asset preservation sufficed. Portfolio performance has gained importance, as has cost consciousness. And not every private bank has delivered.

Moreover, financial pressures have multiplied. The Swiss Bankers' Assn. figures the additional staff and software needed to meet new compliance rules have cost hundreds of millions of francs. Rising customer expectations have also meant higher staffing standards; the days when charm and language skills were passports to a career in private banking are long gone.

But the new circumstances do not mean private banking is unattractive or unprofitable, just that the rules have changed.

Rather than going to Switzerland, clients are now seeking the same prestige and service closer to home. UBS, and, to a lesser extent, Credit Suisse, have adjusted by investing heavily in private banking networks in Europe and Asian financial centers, notably Singapore.

UBS is spending an estimated 1 billion francs on its European Wealth Management Initiative, with growth bolstered by acquisitions of private fund managers across the continent. But such investments are beyond the reach of smaller banks.

The changed circumstances have contributed to renewed rumors about consolidation, with attention focusing on Julius Baer, which surprised analysts with plans to eliminate family control by simplifying its share structure. Most analysts see the move as symptomatic of the new circumstances, and the wish of some family owners to cash in before it is too late.

For in spite of the new challenges, Swiss private banks still appeal to foreign groups keen to improve margins and add luster.

1 Comments:

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