By pumping $14 billion into UBS and
Merrill Lynch to replenish their capital, the Singapore government
looks to have secured the future of the city-state as Asia’s
premier international private banking centre. UBS and Merrill Lynch
are the biggest players in global private banking, both with some
$1.6 trillion in client assets under management. Both have been
badly mauled by the US subprime credit crisis, writing off billions
of dollars in debt, and have now turned to sovereign funds for
help.

The implications of Singapore’s investment in UBS and Merrill seem
clear, bankers suggest. It is unlikely either bank would relocate
its Asian wealth headquarters to Hong Kong, Singapore’s big rival,
in the foreseeable future. Neither bank would be likely to poach
staff from major Singaporean banks such as DBS in future, in case
of earning the displeasure of the Singapore government.

There is some concern that the two banks would be open to pressure
to disclose confidential client data to the Singapore authorities
in future, beyond what is required under financial regulation, and
so make clients nervous about holding money in the city-state. But
this is given little credence.

Singapore has repeatedly refused to bow to international pressure,
including regular lobbying by the EU, to relax its strict bank
secrecy laws, knowing that this is the foundation of its future
success as a global private banking centre. Brussels has
unsuccessfully pressed Singapore to join in its withholding tax
regime because of signs that European money has fled to Asia to
escape the reporting and tax requirements imposed by
Brussels.

Bilan, a Swiss business magazine, suggested UBS could have
difficulties in terms of future competition in Singapore.
Government of Singapore Investment Corp (GIC) could have access to
privileged information that it could “potentially transmit” to
UBS’s competitors.

Reaction in Switzerland to UBS’s deal with Singapore has often
taken a negative tone, with jokes about the bank being renamed the
‘Union Bank of Singapore’.

Temasek and GIC, both Singaporean state investment agencies, insist
they will be passive investors in Merrill and UBS. Temasek, which
has a $100 billion portfolio, has also built its stake in UK-based
Standard Chartered to 18 percent, at a cost of $9.2 billion.