A reassessment of the German operation’s loss reserves drove
down net profits by $400 million, while a weak investment result
and crop losses caused by drought in the United States also took
their toll.

Insurance claims, such as cases involving long-term illness
or medical negligence, are sometimes not made for years after a
policy has expired. Zurich’s German arm had to set aside more
money to cover these so-called “long tail” liabilities.

Zurich’s third-quarter net profit fell 62 percent to $477
million, below an average estimate of $756 million in a Reuters
poll of analysts.

The company’s shares fell to their lowest level since early
August and were trading down 4 percent at 222.5 Swiss francs
($240) a share at 0838 GMT, underperforming a 0.8 percent drop
in the sector index.

Zurich is beloved by investors for its juicy dividend. Last
year it amounted to 17 francs per share, one of the highest
among Switzerland’s blue-chip companies.

Despite the disappointing quarter, analysts still clung to
the hope of a good payout for this year.

“The dividend remains the primary reason for owning Zurich
here, and we think that looks OK for now,” said Andy Broadfield,
a member of the European equity research team at Barclays.

Analysts were also cheered by comments from Chief Financial
Officer Pierre Wauthier, who said that the trouble in Germany
was an isolated case.

“Zurich is confident that there are no similar issues of
significance elsewhere in general insurance,” he said.

General insurance is Zurich’s biggest area of business. In
that segment its combined ratio – a measure of underwriting
profitability – worsened to 102.8 percent in the third quarter.

That means Zurich’s general insurance underwriting business
was not profitable during the period.
($1 = 0.9461 Swiss francs)

(Editing by Hans-Juergen Peters and David Goodman)

Switzerland’s biggest dedicated life insurer bought
Hanover-based AWD for 1.2 billion euros ($1.5 billion) in 2008.
But the division, whose main markets include Germany and
Austria, has struggled in recent years.

Profits have slipped, client advisers left and it has been
accused of improperly pushing products in Germany and Austria.
AWD has denied those allegations.

In the third quarter, AWD’s sales fell 15 percent to 108
million euros, Swiss Life said on Tuesday, taking the shine off
higher than expected group premium income.

Swiss Life has already taken sizeable provisions for AWD and
is thoroughly reviewing the unit. The group will hold an
investor day on Nov. 28 when it may give further guidance on its
plans for AWD.

“We obviously cannot be satisfied with this development,”
Finance Chief Thomas Buess said, referring to the unit’s latest
figures. “We cannot rule out a writedown.”

Late last year, Swiss Life’s then biggest individual
shareholder Carsten Maschmeyer cut his stake and said he would
leave the board because he was unhappy with how the probe into
AWD’s sales tactics was being managed by the company.

However Tuesday’s statement also showed a 1 percent rise in
third-quarter premium income for the group as a whole and a
strong investment result.

Swiss Life’s premium income of 2.98 billion Swiss francs
topped an average forecast of 2.79 billion in a Reuters survey
of analysts. [ID:nL5E8M9D54

Despite low bond yields due to central banks’ policies of
quantitative easing, Swiss Life recorded a non-annualised net
investment return of 3.8 percent for the period between January
and September, stronger than a year ago.

Shares in the firm, which have risen 35 percent so far this
year, were down 1.5 percent at 114.9 francs by 1108 GMT, against
a 0.7 percent fall in the European insurance sector.

“Due to the fact that Swiss Life is currently still able to
generate a decent profit in this harsh environment, we believe
the insurer deserves a higher valuation than the current level,”
said Sarasin analyst Martin Schwab.

The shares trade at around 6.3 times forecast 2013 earnings,
compared with an average multiple of 8.1 times for the European
sector as a whole, according to Thomson Reuters data.

($1 = 0.9482 Swiss francs)

(Editing by Mark Potter and David Holmes)

The Swiss government said on Wednesday it had adopted a mandate for negotiations after consulting parliamentary committees. The two governments have been holding initial discussions on the matter for several months already.

“Bern and Athens are striving towards the swift conclusion of an agreement, similar to the agreements with Germany, Britain and Austria,” the government said in a statement.

A Greek journalist made headlines last month by publishing the names of more than 2,000 of his compatriots who held Swiss bank accounts.

The “Lagarde List” – so named for Christine Lagarde, head of the International Monetary Fund – touched a nerve in near-bankrupt Greece, where rampant tax evasion is undermining a struggle to cut public spending and raise revenue.

Lagarde handed information on tax dodgers to authorities in several European Union states in 2010 when she was French finance minister.

Any agreement with Switzerland could help fill some of the gaping holes in Greece’s budget by imposing a punitive levy on existing account balances and a withholding tax on future gains.

The Swiss government has sought such tax deals as an alternative to the automatic exchange of bank information, in a bid to defend the secrecy it sees as crucial to its $2 trillion offshore wealth management industry.

News of the alleged tax cheats on the “Lagarde List” enraged many who are already furious over consecutive Greek governments’ failure to crack down on the rich while years of recession have wiped out a fifth of economic output and hammered middle-class living standards.

According to an EU report published last year, Greece has about 60 billion euros in unpaid taxes, an amount equal to roughly a quarter of its economy and over a sixth of its debt.

But how much money Athens stands to recoup via a withholding tax deal is not clear.

Greeks held an estimated 24 billion Swiss francs ($25.43 billion)in undeclared assets in Switzerland, according to a 2009 study by Helvea. That amount is likely to have risen as the economic situation in Greece has worsened.

The Swiss have already signed withholding tax deals with Britain, Austria and Germany, and are in talks with Italy.

However, the fate of the German deal now rests with the Bundesrat, the upper house of the German parliament, where Chancellor Angela Merkel’s government lacks a majority. The opposition Social Democrats have threatened to block the agreement, saying it is too lenient on tax evaders. ($1 = 0.9437 Swiss francs) (Reporting by Catherine Bosley; Editing by Catherine Evans)

The Swiss National Bank held 424.38 billion Swiss francs
($449.70 billion) compared with 429.48 billion in September,
according to data published on Thursday.

The reserves declined for the first time since February,
trimming the central bank’s currency holdings to the equivalent
of 72 percent of gross domestic product.

The SNB set a 1.20 per euro cap on a strengthening franc in
September 2011 to forestall deflation and a recession.

Its reserves ballooned as a result as an escalating euro
zone crisis forced it to intervene heavily. But an easing of the
crisis since this September has seen the franc weaken towards
1.21 per euro.

Thursday’s preliminary reserves data was complied under
International Monetary Fund standards.

Since the SNB suffered a record loss on its forex holdings
in 2010 that resulted in calls for then-chairman Philipp
Hildebrand to resign, investors have scrutinised the reserves
data for clues about SNB policy on how long the cap might last.

“Humming along is probably the way forward,” said UBS
economist Reto Huenerwadel, who thinks the cap on the franc is
here to stay, regardless of the size of the balance sheet. “The
next quarter will be a lot like the last, I believe.

“Boring, but that’s exactly what the Swiss National Bank
wants to be.”

Another factor in the equation is inflation.

Low price pressures give the SNB more leeway for big
interventions and support its justification for the cap.

Last month, consumer prices fell 0.2 percent from a year
ago, data published on Wednesday showed, a bigger drop than
analysts in a Reuters poll had expected.

“Growth is suffering due to the weak economy in the euro
zone, which means a marked rise in the rate of inflation won’t
happen for now,” said VP Bank investment research head Bernd
Hartmann.

According to its mandate, the SNB must keep inflation
positive but below 2 percent.

The Swiss economy long seemed immune to the woes afflicting
the neighbouring euro zone, but it shrank in the second quarter.
The government expects GDP growth of 1 percent this year, with a
slight pick-up from that level in 2013.

($1 = 0.9437 Swiss francs)

(Additional reporting by Caroline Copley; Editing by John
Stonestreet)

The UBS real estate bubble index has entered its risk zone
for the first time since Switzerland suffered a housing market
collapse two decades ago. It rose by 0.2 points to 1.02 points
in the third quarter, UBS said on Monday.

“It’s just a piece of the mosaic,” said Matthias Holzhey, an
economist in UBS’s real estate division. “But probably it does
indicate that the likelihood of the central bank doing something
has risen.”

Swiss regulator FINMA toughened up mortgage-lending
standards in July, seeking to thwart a further increase in real
estate prices and home mortgage loans, which have already grown
20 percent in the past four years.

Despite signs of a bubble building in the housing market,
the Swiss National Bank has been forced to keep interest rates
at rock bottom to hold down the value of the franc, in heavy
demand as a safe alternative to investing in the euro zone.

The central bank can, however, recommend that the government
impose a counter-cyclical capital buffer of up to 2.5 percent of
risk-weighted assets in a bank’s mortgage portfolio.

It said in late August it did not expect to call for the
buffer before the end of the year, in part because the new
standards needed time to have an effect.

Yet in a sign the new rules may not be enough, apartment
purchase prices rose 6 percent in the third quarter from a year
earlier, according to SNB data, much faster than wage growth.
The price of homes rose nearly 4 percent during the period.

MAYBE NEXT YEAR

The bulk of Swiss home mortgages are held by the country’s
smaller banks, rather than UBS and Credit Suisse
, which are already subject to strict capital rules
imposed after the financial crisis.

At about 40 percent, Swiss home ownership is comparatively
low, less than in France or Britain. A high number of skilled
workers moving to Switzerland has helped support the
market.

According to the statistics office, the vacancy rate for
flats was at a low 0.94 percent in June, meaning demand is
outstripping supply. In the prime region of Geneva, that rate
was at an ultra low 0.33 percent.

According to FINMA spokesman Tobias Lux, early indications
showed banks had clamped down on risky mortgage lending. Yet he
noted the new regulation only affected mortgages taken out as of
July, not the stock of existing loans.

The UBS economists noted there has been an increase in
demand for property as an investment and said the rise in
mortgage debt showed no sign of abating: “This represents a
dangerous trend, as both drivers could easily be thrown into
reverse and therefore trigger a price correction,” they said.

Slower growth and higher unemployment could increase the
likelihood that borrowers cannot afford their loans.

“I think the buffer may come, perhaps in the middle of next
year,” said Sarasin economist Alessandro Bee. “We’re in a phase
of the economy cooling right now, you see that in the jobs
market, but expect an upswing in early 2013. At the end of this
cycle the SNB might feel they need to act.”

Information on whether the bank’s high-risk mortgage lending
has risen or fallen is not publicly available, and the UBS
bubble index does not include that data.

(Reporting by Catherine Bosley; Editing by Ruth Pitchford)

The Swiss purchasing managers’ index rose to a seasonally
adjusted 46.1 points in October from 43.6 points in September.
Although the print beat analysts’ forecasts for 44.5 points, it
remained below the 50 mark, which separates growth from
contraction, for the seventh month in a row.

Manufacturing has been shrinking for over a year, apart from
a brief pick-up in March.

“We’re heading for a very difficult winter,” said Julius
Baer Chief Economist Janwillem Acket. “There’s no quick growth
perspective ahead.”

More than half of Swiss exports are sold in the euro zone,
where the three-year old debt crisis has dampened demand and in
turn dragged on growth in Switzerland and other countries.

Swiss manufacturers, however, have been helped by the Swiss
National Bank’s decision to impose a cap on the franc a
year ago, after the strong currency threatened to hammer exports
and choke off growth.

While the production component of the Swiss PMI continued to
show a contraction last month, it is edging towards the 50-
point mark, giving some cause for optimism.

“The outlook has improved slightly in October; the
accelerated downtrend of the previous two months has been
broken,” said Credit Suisse and the SVME purchasing managers’
association.

Separate data released on Thursday showed Swiss retail sales
rose by 5.4 percent in September from a year earlier, suggesting
that private consumption will continue to support the economy.

Switzerland’s economy contracted slightly in the second
quarter but the government forecasts 1 percent growth this year.

Trade with Asia – particularly of watches – has helped the
manufacturing sector offset some of the fallout from the euro
zone.

China’s economy is finally regaining some traction, while
India’s manufacturers saw a pick-up in new orders last month,
PMI data for those countries showed on Thursday.

(Reporting by Catherine Bosley and Caroline Copley; Editing by
Susan Fenton)

The diversification and profit bolster the SNB’s drive to
keep the safe-haven franc capped at 1.20 per euro, a limit set
more than a year ago to ward off deflation and recession.

“Today’s policy can be continued, for sure,” Credit Suisse
economist Maxime Botteron said after Wednesday’s data.

SNB reserves this year have risen 70 percent to
429.9 billion Swiss francs ($461.8 billion), equivalent to
almost three-quarters of national output, as it bought billions
of euros to stop the franc strengthening past 1.20 per euro.

Yet an easing of market tension in the euro zone in
September has seen the franc weaken towards 1.21 per euro,
stemming the need for the SNB to intervene and allowing it to
diversify out of euros.

Thanks to the weaker franc, the central bank said on
Wednesday it recorded a gain of 10.3 billion francs on its
foreign currency positions for the first nine months, helping it
to record a book profit of 16.9 billion for the period.

The SNB also said it cut its holdings of euros to 49 percent
in the third quarter from 60.1 percent in the second, while its
holdings of dollars rose to 27.6 percent from 21.7 percent and
of British pounds to 6.7 percent from 3.3 percent.

PORTFOLIO RISKS

“This rapid pace of diversification … could suggest SNB
policymakers are specifically concerned about risks emanating
from the euro zone rather then portfolio balance,” said
Swissquote analyst Peter Rosenstreich.

The larger the SNB’s euro holdings, the bigger the risk of
it suffering huge losses if the euro zone were to break apart.

In September, the SNB rejected a report by ratings agency
Standard & Poor’s that its buying of euro assets had helped to
push down yields on “core” euro zone bonds.

The bulk of the SNB’s foreign currency reserves are held in
highly-rated government debt. It increased its equity holdings
to 12 percent from 10 percent during the third quarter.

The SNB is a joint-stock company that has to report results
to its shareholders, most of whom are Switzerland’s 26 states,
or cantons. They have come to rely on an annual dividend from
the central bank to help support their budgets.

In 2010, the bank came under heavy fire after it ran up a
record loss of 27 billion francs on its currency holdings as it
intervened to try to weaken the franc, resulting in calls for
then Chairman Philipp Hildebrand to resign.

Yet the SNB’s policy of putting a lid on the franc since
September 2011 has drawn broad support in Switzerland. It has
helped to stabilise the economy and the bank has managed to post
profits despite the ballooning of its balance sheet. It made a
profit last year of 13.5 billion francs.

“If the exchange rate holds, then the likelihood rises that
they will make a profit at the end of the year. And then the
political pressure won’t grow,” said Botteron at Credit Suisse.

The SNB is trying to diversify its portfolio further and
its holdings of other currencies – including Swedish and Danish
krona, Australian and Singapore dollars, and South Korean won -
rose to 4.2 percent in the third quarter from 3.4 percent.

($1 = 0.9310 Swiss francs)

(Editing by Emma Thomasson and Stephen Nisbet)

Shares in the firm, whose products put colour into plastics,
fell more than 5 percent on Wednesday after it predicted flat
sales in local currencies for 2012, compared with a forecast in
July for some growth.

The chemical industry’s dependence on highly cyclical
machinery makers, car manufacturers and builders makes it
especially vulnerable to economic downturns.

Earlier this month AkzoNobel, the world’s biggest
paint maker, plunged to a quarterly net loss.

Clariant, said third-quarter net income fell 40 percent to
49 million Swiss francs ($52.6 million), missing analysts’
average forecast of 53.6 million..

Growth in emerging markets, including in Asia, was unable to
offset slackness in Europe where the euro zone debt crisis
weighed, the firm said.

Clariant shares were down 5.4 percent at 10.26 francs by
0955 GMT, compared with a 0.3 percent firmer European chemicals
sector.

However, Chief Executive Hariolf Kottman was optimistic the
group would overcome the economic trough, helped its purchase of
German group Sued-Chemie and restructuring efforts.

“Although the short-term economic challenges are expected to
persist, Clariant’s mid-term guidance until 2015 remains
intact,” he said.

Vontobel analyst Patrick Rafaisz confirmed his “buy” rating
on the stock.

“We may have to take our estimates down somewhat further for
2012, but with mid term goals still valid Clariant remains on
track for delivering on its corporate transformation,” he said.

“While the progress will now be slower than we initially
hoped, this is economy related and not company specific.”

Clariant expects raw material costs to be unchanged this
year versus 2011, while exchange rates should remain at the
levels of the start of the year.

($1 = 0.9310 Swiss francs)

(Editing by Mark Potter)

The doorway leads into a disused military bunker, one of
several being sold off by the Swiss government and whose
echoing, climate-controlled chambers, once used to stockpile
munitions, are being put forward as ideal storage space for
works of art.

The 57-year-old bunker near Lake Lucerne, marketed as a site
to store valuables and on offer at 386,000 Swiss francs
($417,000), could relieve a huge concentration of costly
paintings at the world’s biggest fine art vault in Geneva, the
storage option of choice for wealthy buyers worldwide.

That warehouse, prized for its high security and its
location in Geneva’s tax-exempt freeport zone, holds art worth
about $100 billion and has space to accommodate more.

But insurance underwriters, fearing ruinous losses if the
facility were hit by a fire or an art heist of the kind that
struck Rotterdam’s Kunsthal museum earlier this month, are
raising the cost of insuring any more paintings under its roof,
or even refusing cover altogether.

“If you are a prudent insurer you want to make certain that
you know how much risk you are exposed to at a certain
location,” said Nick Brett, underwriting director at AXA
Art Insurance, the world’s biggest specialist art
insurer.

“There’s an awful lot of art in Geneva freeport, and as
insurers we have to make sure we don’t expose ourselves to just
one place.”

The cost of insuring paintings stored at the Geneva facility
has doubled over the last three years, Brett estimates.
Investors who stockpile art in an equally secure location
without the same concentration of risk can expect to pay up to
50 percent less to insure it, according to Richard Nicholson,
fine art specialist at insurance broker Willis.

The insurance impasse at Geneva, replicated at other
specialist art vaults worldwide, comes as wealthy investors
fleeing volatile stock and bond markets are putting money into
paintings instead and need places to store them.

Soaring art sales have increased the volume of work in
storage while also boosting its price, causing a build-up of
value at the world’s art vaults, and creating an unforeseen new
risk factor for the insurance industry.

Art investors want new storage space to cut their insurance
costs, and would use converted military bunkers provided they
met the necessary security and climate control requirements,
said Enrique Liberman, president of the New York-based Art Fund
Association.

“It really depends what they do with the space rather than
the space itself,” he said. “If you expand the number of
warehouses a lot of the risks inherent to storing art might be
mitigated, because they won’t be so overcrowded.”

BURNING QUESTION

The danger of allowing a big accumulation of costly art in
one place was underscored in 2004 by a London warehouse fire
which destroyed work by Damien Hirst and Tracey Emin among
others, costing insurers 20 million pounds ($30 million).

With turmoil in financial markets prolonging the art
investment boom, art storage looks set to remain at a premium.

Art’s growing appeal as an investment asset is illustrated
by the emergence since the mid-2000s of professional fine art
investment funds. There are about 45 such funds with combined
assets of about $1 billion, and more are preparing to launch,
according to the Art Fund Association’s Liberman.

They have contributed to the global art market’s recovery
from a brief downturn after the 2008 banking crash, evidenced by
the sale in May of a version of Munch’s “The Scream” for a
record $120 million.

Total sales through auction houses and dealers grew to an
estimated $55 billion last year, not far off their pre-crisis
peak of about $60 billion, Willis’ Nicholson said.

Art storage firms have responded by building new facilities.
The Geneva freeport unit is being extended, and a new freeport
vault is due to open its doors in Luxembourg in 2014.

But disused bunkers in Switzerland, the epicentre of the art
storage world thanks to the country’s expertise in discreetly
looking after the assets of the rich, offer a ready-made
alternative that is already being exploited.

“People have been talking about this for some time,” said
Robert Read, fine art underwriter at Bermuda-based Hiscox
, the world’s second-biggest art insurer.

“It would make very suitable storage.”

One firm that has successfully converted a military facility
into storage space for art is Swiss Data Safe, based in the
central Swiss town of Amsteg. Swiss Data Safe stockpiles
paintings, bullion and computer data in an Alpine bunker
originally intended as a refuge for the Swiss government in case
of invasion or nuclear war.

The company declined to be interviewed.

The Tate, home to Britain’s national art collection, keeps
some of its paintings in a decommissioned missile storage unit
in Hampshire, south-west of London, an art industry source said.
The Tate declined to comment.

Missile bunkers can be adapted to hold paintings as they are
climate-controlled and highly secure, the main requirements for
art storage, according Paul Williamson, commercial director at
London-based art logistics firm Constantine.

Buying and converting a bunker could also be cheaper than
building a vault from scratch, which can cost between 15 million
and 20 million pounds ($24-$32 million), Williamson said.

BUNKERS FOR SALE

There are many disused military facilities in Switzerland,
heavily fortified during World War II against Nazi invasion.

More were built at the height of the cold war in the 1960s,
when the country was committed to providing space in a nuclear
fallout shelter for each resident.

But the collapse of the Soviet Union has led to a
reassessment of defence priorities. To save money, many such
sites were closed, and some are now up for sale.

Armasuisse, the government agency selling the bunker near
lake Lucerne, declined to say how much interest it has received.
The agency will review offers for the site after October 31.

Art insurance premiums amount to about $600 million
annually. Big art claims have been rare, caused mainly by
accidental damage to paintings during transport, or mishaps such
as a 2006 incident in which casino owner Steve Wynn put his
elbow through a Picasso he owned.

But the build-up of billions of dollars’ worth of art in a
handful of locations has brought a realisation that a single
event could now easily wipe out a whole year’s premiums.

“A plane crashing into one of the freeports – that would be
where our catastrophes are,” said Hiscox’s Robert Read.

Net profit at the company, which competes with the likes of
Siemens and General Electric, dipped 4 percent
in the quarter to $759 million compared with an average analyst
forecast for $764 million. Orders fell 5 percent to $9.295
billion, short of the $9.958 billion expected in a Reuters poll.

“I get concerned that a lot of the macro-economic signals
point down right now, so we have to stay on our toes,” Chief
Executive Joe Hogan said.

Yet Hogan was keen to look beyond current economic
turbulence to sketch out good longer-term prospects built on
rising demand for energy efficiency and urbanisation, saying he
had grounds for “cautious optimism”.

ABB, which makes components for the oil and gas industry and
big infrastructure projects, has faced tough competition on
prices and weak demand as clients postpone big capital
expenditure projects and governments tighten their belts.

In the third quarter, demand differed depending on the
market, with orders from the United States rising 13 percent and
those from China steady, while they slumped 64 percent in
Germany and 39 percent in India.

ABB shares were down 0.7 percent at 0845 GMT, compared with
0.5 percent rise in the sector index.

Although the fall in ABB’s orders was negative, its comments
about the strength of the U.S. market and the stabilisation of
orders in China were positive, said Kepler Capital Markets
Christoph Ladner.

“Despite the claimed limited visibility, we believe that an
order backlog covering more than nine months of sales puts ABB
in a relatively good position,” Ladner said.

Analysts at Sarasin said the results were too heavily
dependent on the fruits of an acquisition spree Hogan has
embarked upon since taking over in 2008, with electrical
components-maker Thomas & Betts a big contributor.

ABB bought the U.S. firm this May for $3.9 billion, in a bid
to boost its offering of automated products like industrial
robots and enhance its profile in the United States. It bought
motor maker Baldor Electric in 2010,

The fall in ABB’s orders in the third quarter would have
been larger without the Thomas & Betts buy.

Hogan, a U.S. citizen, has said no more big deals are
planned this year.