Bloomberg News

Swiss Banks May Lose $51 Billion of German, U.K. Assets

November 29, 2011

(Updates with comment from Pictet in fourth paragraph.)

Nov. 29 (Bloomberg) -- Swiss wealth managers may lose about 47 billion Swiss francs ($51.1 billion) in assets as clients make withdrawals before tax agreements with Germany and the U.K. come into force in 2013, according to a Booz & Co. study.

Banks may also lose about 1.1 billion francs in annual revenue, or about 4 percent of the 2010 total, Booz said in a study published today. Switzerland reached agreements with Germany and the U.K. this year over taxation of undeclared bank accounts. Revenue generated from the tax on investment and capital gains will go to the German and U.K. treasuries while client identities remain secret.

Profit margins for UBS AG, Credit Suisse Group AG and other Swiss banks are declining in the wake of the financial crisis and as a crackdown on tax evasion pushes American and European clients to repatriate funds. That requires wealth managers to learn new skills as a decline of about 25 percent in Swiss offshore assets to 2 trillion francs since 2007 adds to the pressure to find new customers.

The relationship manager’s job is becoming “much, much harder” as bankers grapple with legal, tax and compliance issues in addition to following developments in the market, said Jacques de Saussure, senior managing partner at Pictet & Cie., Geneva’s biggest private bank. “It’s become a nightmare,” said de Saussure, whose 206-year-old bank has 252 billion francs of assets under management.

Offshore Haven

UBS, the biggest Swiss bank, requires its 4,252 client advisers to attain a wealth-management diploma that tests their sales and financial expertise as well their risk, legal and compliance knowledge.

Banking in the biggest haven for offshore wealth became more complicated after Switzerland agreed in March 2009 to comply with Organization for Economic Cooperation and Development tax standards. The government has since signed or initiated double taxation agreements with more than 30 countries, reached accords with Germany and the U.K. and is negotiating with the U.S. to settle a cross-border tax evasion probe.

“When I started my career 18 years ago in Geneva the job was totally different,” Boris Collardi, the chief executive officer of Zurich-based Julius Baer Group Ltd., said in July. “You need today to have a different skills set, be much more informed, much more knowledgeable and you have to have a higher degree of competences to serve your client.”

‘Challenging Environment’

Collardi began his career as a trainee with Credit Suisse, the country’s second-biggest wealth manager. Since spring last year, Credit Suisse requires every client adviser to complete a training certificate to prepare them for what it describes as the “new dawn” of private banking.

Credit Suisse, which had 4,120 relationship managers at the end of September, announced 478 million francs of litigation provisions earlier this month for tax settlements in the U.S. and Germany. Larger rival UBS avoided prosecution in 2009 by paying $780 million, admitting it fostered tax evasion and handing over details on thousands of secret accounts.

Private bankers and wealth management experts interviewed by Booz expect outflows of 25 percent to 30 percent of non- declared assets because of the withholding tax agreements, according to median estimates. Swiss banks managed about 270 billion francs for German and British clients that are not based in Switzerland at the end of 2010, of which some 164 billion francs may be undeclared, the consultants estimated.

Revenue Loss

As clients withdraw funds and pay regularization taxes, Swiss wealth managers stand to lose about 600 million francs in annual revenue, Booz said. Banks may lose another 500 million francs in revenue as customers demand fees closer to those charged for onshore accounts, the study showed.

That impact may double should Switzerland agree to similar accords with other European countries, Booz said. Tax agreements with Greece, Italy and France may follow, Claude-Alain Margelisch, chief executive officer of the Swiss Bankers Association, said on Nov. 22.

“Private banks are already under pressure as margins fall because of the crisis and costs need to be reduced,” said Carlos Ammann, managing partner of Booz in Switzerland. “Now on top of that this structural change is coming. The ‘white-money’ strategy will accelerate.”

Bank Margins

The banks’ margins, or revenue earned on assets under management, are typically the highest for offshore money managed in Switzerland, Ammann said. Wealth managers may earn about 120 to 150 basis points on such assets, compared with 90 to 100 basis points on onshore Swiss funds and some 60 to 70 basis points for onshore assets in Germany, he estimated. A basis point is one hundredth of a percentage point.

As profit margins narrow and the demands on private bankers increase, wealth managers are seeking to hire people with a good financial and legal knowledge, plus the ability to find new clients, according to Gina Le Prevost, a recruiter with AP Executive in Geneva.

“Firms are looking for people who can think of new schemes and ideas to excite clients in difficult markets,” said Le Prevost. “They want self-motivated go-getters who can build a book of assets in a competitive environment.”

The pressure to perform is unchanged, according to Werner Rueegg, who started work as a wealth manager 28 years ago at Credit Suisse. Rueegg, now with Bank Sarasin & Cie. AG, said forging relationships with millionaire clients remains a key part of private banking and he still takes his best customers to shoot elephants and buffalo in Botswana and Zimbabwe.

“It’s a lifetime cycle of advice you are giving,” said Rueegg. “Whenever you go hunting with a customer, it has to be a friend too. You have to trust each other a lot.”

--Editors: Dylan Griffiths, Stephen Taylor, Frank Connelly.

To contact the reporter on this story: Giles Broom in Geneva at gbroom@bloomberg.net Elena Logutenkova in Zurich at elogutenkova@bloomberg.net

To contact the editor responsible for this story: Frank Connelly in Paris at fconnelly@bloomberg.net


Ebola Rising
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus