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December 20, 2010updated 05 Jun 2017 11:37am

Private banks should survive tax accords

Further evidence has emerged that Swiss private banking should surmount the outflow of client money from its new round of tax agreements Now treaties with Germany and the UK have been signed, we look at how the clean up of untaxed money in secret accounts could impact assets in Switzerland. Tens of billions of Swiss francs of client assets are expected to be impacted by renegotiated double-tax treaties between Switzerland and almost a dozen European countries

By PBI Editorial

Further evidence has emerged that Swiss private banking should surmount the outflow of client money from its new round of tax agreements. Now treaties with Germany and the UK have been signed, we look at how the clean up of untaxed money in secret accounts could impact assets in Switzerland.

Map of Switzerland showing estimated undeclared assets threatened by double tax agreements

Tens of billions of Swiss francs of client assets are expected to be impacted by renegotiated double-tax treaties between Switzerland and almost a dozen European countries. Germany and Britain were two of the first such treaties. Nationals of Germany, France and Italy together have an estimated CHF470bn ($484bn) in untaxed Swiss accounts.

UBS and Credit Suisse have indicated that the new tax deals could lead to declarations of as much as CHF75bn from the offshore accounts of clients of the two banks from neighbouring countries. CS and UBS have quantified their cross-border business with large EU countries, as 12% and 10% of their wealth management divisions’ assets under management (AuM) respectively. The component vulnerable to foreign tax policy changes has been disclosed at 3-4% at CS and 2-5% at UBS.

UBS has estimated that clients may withdraw up to CHF40bn because of the renegotiated tax treaties; representing about 5% of the bank’s total AuM.

Still, more bns of client money could flow out from the rest of Switzerland’s 170 private banks as clients either shift their money or banks are forced to take tax from accounts and hand it over to foreign authorities.

Baer new net money targets

Now Julius Baer has struck a note of optimism, saying it would be able to reach its net new money targets even if European clients withdraw undeclared money.

“We think that we will be able to reach our net new money goals over the next years even if 25-30% of undeclared money is shifted to other European countries,” chairman Raymond Baer declared.

Table showing Swiss authorities near completion of European DTAsBaer, giving a business update, said it was well into its medium-term target range of 4 to 6% growth in net new money in the first ten months of 2010. AuM rose to CHF175bn at the end of October, including the acquisition of ING Bank (Switzerland) – an increase of 14% over full-year 2009.

Matthew Clark, analyst at Keefe, Bruyette & Woods, said top management at banks like Credit Suisse, Baer and Bank Sarasin have a “pretty uniform view” of the new tax treaties.

He said any agreements with EU countries would not come into force until 2013 at the earliest, given the time demands from the negotiation and ratification process.

“We see this as a material positive, allowing smoother management of the transition, as vulnerable clients self-declare in the multi-year interim period,” Clark said. “In essence, a mid-single digit gross outflow would spook [confidence] if it occurred in a single period, but absorbed over several years should be less noteworthy.”

A legitamised cross-border model? 

In fact, there could be upsides from the new tax treaties, according to Swiss private bankers. This new cross-border model for tax declaration could be regarded as a “legitimisation mechanism” as it allows regularised funds and net of back taxes to be retained in their current offshore accounts, Clark said.

By contrast, recurrent tax amnesties mounted by Italy, required funds to be restructured or repatriated, a process which increased the chance of a “leakage” of assets outside of the original private bank.

Several Swiss executives even suggest that, under a new regime, the profitability of legitimised cross border client assets would lead to increased trading activity, encouraged by more frequent contact with clients.

 

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