Swiss stability anchors banks in choppy tax waters

The world's wealthy will continue to trust their fortunes to stable, neutral Switzerland even as a clampdown on tax evasion undermines the country's secrecy laws, Swiss bankers said.

"The worn-out cliche has it that the sector was built on banks offering shelter to tax frauds and illicit money. This is a gross distortion," former Deutsche Bank head Josef Ackermann told the Reuters Global Wealth Management Summit in Geneva.

Ackermann, now chairman of Zurich Insurance, said the success of the Swiss financial industry was a result of enduring political, economic and social stability, as well as factors such as low taxes and a multi-talented workforce.

"That is why the scope and quality of Switzerland's financial sector has been, and continues to be, difficult to replicate abroad," he said.

"The unique blend of factors, much more than tax-related motives, have defined the competitive edge of Swiss private wealth management."

Strict secrecy laws, which protect the identity of bank clients, have helped Switzerland to become the world's biggest offshore financial center, with $2 trillion in assets.

But that tradition has come under fire in recent years as countries including the United States, Germany and France have sought to fill budget deficits by pursuing tax dodgers with Swiss accounts, forcing Switzerland to hand over information on bank clients.

The latest blow came last week when the government proposed legislation to allow Swiss banks to disclose internal information to the U.S. authorities in the hope of avoiding threatened criminal charges.

DIVERSIFICATION, DISCRETION

The Boston Consulting Group expects Switzerland to remain dominant but sees its share of total offshore wealth slipping to 25 percent by 2017 from 26 percent in 2012, with second-placed Singapore increasing its share to 12 percent from about 10 percent.

"The offshore model remains viable because wealth management clients will continue to seek diversification, broad private-banking capabilities, specialized expertise and discretion," the group wrote in its 2013 Global Wealth report last week.

UBS, Switzerland's biggest bank, has warned that it could lose up to 10 percent of its European assets of 300 billion Swiss francs ($314.6 billion) as clients come clean about untaxed accounts.

But Juerg Zeltner, head of the UBS private bank, said that trend was not leading to an exodus of clients.

"Most keep the assets where they are … we are very happy with the retention rate," Zeltner told Reuters, adding that clients wanted to keep their Swiss accounts to diversify their exposure or because they were happy with their advisers.

"Sometimes we sell short the advantages we have here in Switzerland," he said. "There are very, very many good reasons for many, many wealthy clients to bring money into Switzerland."

Though UBS and other global players are likely to attract the fortunes of the newly rich in growing markets such as Asia and Latin America, smaller Swiss banks face a struggle to adjust to life without tax-evading Europeans.

"We feel the increased costs of regulation of cross-border business," said Alexander Classen, the head of international operations at Coutts, the private bank of Royal Bank of Scotland, adding that those costs have risen 30 percent in two years.

"Swiss bank secrecy … can no longer be part of anybody's value proposition. Swiss banks have to reinvent themselves and deliver risk-adjusted provision and quality service."

© Copyright 2013 Thomson Reuters. 

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