Bloomberg News

Lombard Odier Says New Money Offsets Undeclared Outflows

June 29, 2012

Lombard Odier & Cie., Geneva’s oldest bank, is set to meet its target for net new money amid concern about Europe’s debt crisis, said Bernard Droux, one of eight partners with unlimited liability at the firm.

Client inflows will at least match last year’s 7.2 billion Swiss francs ($7.4 billion), helping to maintain profitability, Droux said in an interview in Solothurn, Switzerland. The bank is targeting 7 billion to 8 billion francs, he said.

Geneva “is enjoying nice net new money everywhere, at least in banks that are big enough to be known by foreigners,” said Droux, who is also president of a group that promotes the city as a financial center. Swiss banks are attracting inflows from the Middle East, Asia, South America and Spain, he said.

Lombard Odier, which had 142 billion francs of assets under management at the end of last year, is bidding to attract new business as a crackdown on tax evasion pushes American and European customers to repatriate funds from offshore accounts. While Swiss banks will lose some undeclared money, they are luring money from rich foreigners concerned about the health of lenders in Spain and other indebted countries, said Droux.

A lot of Spaniards “want their money to be deposited in Switzerland even though they are fully declared people,” he said, declining to estimate inflows. “As long as a bank is not nationalized people are afraid of staying with the bank.”

There hasn’t been a significant influx of funds from Greece during the crisis as wealthy Greeks already held their funds outside the country and prefer London, the Channel Islands and Cyprus to Switzerland, said Droux.

Undeclared Outflows

Droux expects Switzerland to see an outflow of undeclared funds over the next two years.

“Sometime in 2013 or 2014 we will have a drop in assets under management of something like 25 percent of the undeclared money,” he said.

Switzerland has signed agreements with Germany, the U.K. and Austria, which will impose a levy on assets held offshore in the past and oblige banks to withhold tax on future income from wealth held in Switzerland by non-residents.

As much of one-third of private wealth held in Switzerland may be undeclared and at risk from foreign tax collectors as the Swiss secrecy advantage erodes, Benedict Hentsch, chairman of Geneva-based Banque Benedict Hentsch & Cie. SA, said this month.

Immediate Drain

That figure is probably too high, said Droux, adding that a maximum 15 percent of client money at Lombard Odier and other private banks is undeclared. He estimates that new taxes may result in an immediate drain of 5 percent of client funds across Swiss private banks as money is returned to the treasuries of other countries.

“It’s very difficult to give exact numbers because clients may have declared their money without us knowing,” he said.

Declining financial markets, a strong Swiss franc and rising compliance costs also threaten wealth-management margins in Switzerland, Droux said.

“We need growth just to maintain profitability,” he said. “A lot of clients now will have to be addressed in their home country and it is more expensive than before.”

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

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


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