Financial Regulatory Forum

ANALYSIS-Pressure mounts on Swiss private banks

By Reuters Staff
February 2, 2010

By Lisa Jucca and Rupert Pretterklieber

ZURICH, Feb 2 (Reuters) – Swiss private bankers say attacks on the country’s treasured bank secrecy law turned 2009 into an “annus horribilis.”

A fresh German offensive against tax cheats does not make 2010 look any better for the key guardians of Switzerland’s multi-trillion-dollar wealth management industry.

Despite a settlement in the United States aimed at ending a tax probe against Swiss bank giant UBS and Switzerland’s pledges to help foreign authorities hunt down tax dodgers, the pressure on already weakened Swiss bank client confidentiality refuses to subside.

Germany’s announcement on Monday that it was prepared to pay for data on clients of a Swiss bank touted by a whisteblower has sent shivers across Swiss banking.

“This is a case that affects the whole of the Swiss financial market place because confidentiality and privacy is one of the pillars of the Swiss private banking model,” said Rainer Skierka, senior analyst at private bank Sarasin.

“This is shattered in a way and it is certainly not helping (Switzerland). They have to do everything to get this problem solved…and not let those who stole the data get away.”

Switzerland, the world’s No.1 wealth management hub, manages an estimated $6 trillion of wealth, with potentially nearly one third of it undeclared, analysts have said.

Its banks attracted net client inflows of 2 percent of assets in 2008, down from 7 percent in 2007, according to McKinsey data.

After last year’s U.S. attacks on UBS, many Swiss private banks have started to ditch U.S. accounts, which in any case represent a minority of clients.

But losing clients from neighbouring Germany, Europe’s No.1 economy and Switzerland’s main trading partner, is not affordable for Swiss private banks given their large German client base.

“Our telephones are constantly ringing,” said a financial advisor at a Swiss-based private bank. “Clients are concerned that they may be involved in the (German) data affair.”

 PRESSURE FROM ALL SIDES

While some analysts believe Berne will wriggle its way out of the legal deadlock over the U.S. tax deal with UBS, mounting pressure from neighbouring European countries may leave bank secrecy with as many holes as an Emmental cheese.

The Germans have not named the bank, adding to uncertainty among clients holding undeclared money in Switzerland.

“Yesterday I spoke on the phone with six terrified clients who wanted to know what they should do,” said another private banker in Switzerland.

The German data affair comes just months after France, another Swiss neighbour, announced it had obtained sensitive data belonging to potential tax evaders, some of which belonged to the Swiss private banking operations of HSBC.

A spokesman for the Dutch finance ministry said on Tuesday it would seek copies of whatever data Germany purchased, with the aim of looking for Dutch account holders.

UBS called any possible reference to it being involved in the German data affair “speculation”. HSBC in Geneva and Julius Baer declined to comment. Credit Suisse said: “We have no information about a potential data leak.”

Italy, the third key country for Switzerland’s banking client base, has managed to drain nearly 100 billions euros from Swiss coffers through a tax amnesty that is still going on.

“The Swiss have lost a competitive advantage because bank secrecy has been weakened,” said Urs Roth, the outgoing Chief Executive of the Swiss Banking Association.

German media have said Berlin is ready to pay 2.5 million euros for data on up to 1,500 potential tax evaders with secret accounts in a Swiss bank.

They paid nearly twice this amount in 2008 to obtain data from Liechtenstein’s LGT bank that framed an ex-Deutsche Post chief and forced the principality to abandon secrecy laws.

“If you look at the Liechtenstein banks, net new money turned negative generally in 2008, with LGT suffering the most,” said Tobias Bruetsch, an analyst at Swiss bank Vontobel

“The whole story is one more sign that Swiss banking secrecy remains under pressure even though the Swiss have accepted OECD standards” (for greater tax cooperation).”

(additional reporting by Albert Schmieder, Ben Berkowitz and Ed Taylor; Editing by David Cowell)

((elisabetta.jucca@reuters.com; +41 (0)58 306 7462; Reuters Messaging: elisabetta.jucca.reuters.com@reuters.net)) ($1=.7188 Euro)

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