Geneva banks fight concessions on Swiss secrecy laws to remain afloat
July 5, 2009
By Stephanie Baker and Warren Giles
On a hot Saturday morning in May at Rolle yacht club on Lake Geneva, Guy de Picciotto, the chief executive of Switzerland's Union Bancaire Privee, applies sunblock as he rallies a crew of six to race his $600 000 (R4.7 million) catamaran.
"It wouldn't do to look too tanned on Monday morning," De Picciotto, 49, says with a grin before heading out to his carbon fibre yacht moored offshore.
"I don't have the weight of the bank when I'm out sailing," De Picciotto says. "These are toys. It's my leisure."
De Picciotto and his fellow Geneva bankers were never more in need of stress reduction. Their world was shattered by last year's market crash and global recession.
The banks are working overtime to assuage angry clients and win new ones, and risk managers are backing away from bets on volatile stocks and derivatives.
A refuge for the world's nervous money, Swiss banks are stumbling. Total assets held on behalf of foreign clients slid more than Sf1 trillion (R7.2 trillion) to Sf2.1 trillion from the end of 2007 to March, according to the Swiss National Bank.
In addition to plunging markets, Union Bancaire Privee, which manages Sf100 billion, lost $700m in Bernard Madoff's Ponzi scheme. Geneva wealth managers and their funds account for about $8.8bn of the losses in the $65bn Madoff swindle, according to the Geneva Financial Centre.
Not all of the news was bad in Geneva's banking quarter. While assets at all of the banks declined due to market losses, some private banks, including Lombard Odier, Mirabaud and Pictet, are picking up new clients from firms that have been propped up with government subsidies, such as Citigroup, Royal Bank of Scotland and UBS.
Zurich-based UBS was hit hard by losses on the US subprime collapse and last year got a $45bn government aid package.
Investors have yanked Sf130bn out of UBS since the beginning of last year. The bank is battling the US Internal Revenue Service, which is seeking information on the Swiss accounts of 52 000 US clients.
The Geneva-based banks are selling themselves to flustered investors as safe havens. Some are unlimited liability partnerships, which means the partners bear personal responsibility for losses. Pictet banked Sf17bn in net new deposits last year, of which Sf7bn arrived in the fourth quarter, as wealthy clients panicked after the collapse of Lehman Brothers.
While UBS bled assets, most of the Geneva-based private banks had net inflows of money, Bloomberg data show.
"Clients face people who risk their entire fortune every day," says Patrick Odier, senior partner of Lombard Odier. "Other firms can go through Chapter 11 and their executives can still keep their chalets. If our people make mistakes, our partners assume it to our very last cent."
Having survived the market crash, Geneva's bankers have shifted their focus to their second-highest priority: keeping their account information secret, or, as the bankers prefer to say, protecting client privacy. A decade after other nations pressured Switzerland into tightening anti-money laundering rules, governments are once again targeting offshore centres in a campaign to expose wealthy tax cheats.
Switzerland, a repository for 27 percent of all offshore wealth, is their top target. And the Swiss government has buckled.
In March, a month after UBS paid $780m to the US government to defer criminal charges that it facilitated tax fraud, Swiss President and Finance Minister Hans-Rudolf Merz announced that Swiss banks would co-operate with foreign governments looking for tax evaders, if specific information was presented showing they were using a Swiss account to do so.
Previously, Switzerland had co-operated on tax fraud. Now it will treat tax evasion, which is not a crime there, in the same way.
"The era of banking secrecy is over," world leaders declared at the Group of 20 summit in London in April.
Geneva bankers charge that the attack is a grab for their assets by envious bankers elsewhere and governments eager to bolster enfeebled treasuries.
"We are in an economic war," says Yves Mirabaud, the managing partner of Mirabaud. "Switzerland is an easy target. The big countries want to take market share."
Swiss private bankers defend the secrecy laws, which make it a crime for a banker to divulge a client's financial information. A banker can go to jail for up to three years for revealing bank secrets.
Jacques de Saussure, the managing partner of Pictet, says: "Most clients like to be very discreet because they were born rich or have grown rich, and they know it's better not to talk about it too much."
There are 330 banks registered in the country. Swiss banks could lose 20 percent of their assets if the government agrees to surrender details on possible tax dodgers, says Peter Thorne, an analyst at Helvea.
"Swiss banks are not an endangered species, but the world of absolute bank secrecy is behind us," says Jeremy Jensen at PricewaterhouseCoopers in London. "Private banks need to plan for a tax-transparent world and work to their strengths."
Once depositors' identities and the sources of their money have been confirmed, the bankers say it's not their job to investigate whether they have paid taxes.
"Many clients have come to Switzerland as a safe haven, not to dodge taxes," Odier says. "This tradition of protecting the private sphere attracts more and more clients."
Swiss private bankers are eminently adaptable, but that doesn't mean there won't be casualties. At the Rolle yacht club, De Picciotto says the regatta has not been spared. "There are fewer sponsors these days," he says. - Bloomberg
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