All articles by PBI Editorial
PBI Editorial
Blow for havens as EU moves to strengthen savings tax rules
In a further move against Europes embattled tax havens, European Union finance ministers have given the green light to a toughening of the continents rules on savings taxes. The initiative to rewrite the EUs Savings Tax Directive, which came into force in 2005, follows pressure from Germany after a widespread tax fraud which involved secret accounts in Liechtenstein and some 1,400 individuals, including 600 German citizens. Following high-level meetings in Brussels, EU tax commissioner Laszlo Kovacs indicated that he will amend the current rules on the lines demanded by Germany, improving the exchange of information between banks and extending the scope of the directive. The new rules are also expected to cover other types of financial vehicles such as trusts and foundations as currently only bank accounts are affected, Kovacs said, pledging to close loopholes in the savings directive.Germany claims it loses as much as 30 billion to 40 billion ($46.79 billion to $62.39 billion) each year in tax fraud and the EU Commission has been asked to provide an interim report on how the current rules work by the end of September.To protect its own investment industries, Luxembourg has already signalled opposition to the proposal while Austria and Belgium suggested they would not be willing to supply information on savers accounts to other countries.These three are allowed to retain secrecy in exchange for imposing a withholding tax on account holders earnings, some of which is returned to the home country.Some offshore centres have signalled they will be accommodative to a strengthened EU directive
UBS starts damage limitation
After being so badly tarnished, can UBS turn itself around? Disclosing earnings for the first-quarter of 2008, UBS, still ranking as the biggest global wealth manager, made it clear that it is shifting focus away from high-risk investment banking activities like structured finance, proprietary trading and leveraged lending in an attempt to repair the damage to its private banking division wrought by foray into the US credit markets.The group reported $19 billion in write-downs related to the credit markets, in line with its warning in April, and an $11.5 billion first-quarter loss It confirmed it is exiting the US municipal bond business and will sell a portfolio of doubtful mortgage loans to BlackRock for $15 billion, a discount of about a third of the portfolios notional value.UBS executives also unveiled aggressive measures to reduce its leverage and costs, setting another 5,500 job reductions over the next year, including 2,600 already announced in its investment banking division.Analysts believe that UBS, which may suffer from an impaired earnings-generating ability for several years because of the restructuring related to subprime exposures, must move urgently to repair the reputational damage to its $1.8 trillion global private banking franchise.Net new money outflows were $12 billion in the quarter compared with inflows of $52 billion last year this time, attrition only partly linked to lower market returns.The slowdown in inflows is in part a reflection, no doubt, of the reputational damage we have sustained, chief financial officer Marco Suter said
Advisory models create opportunities
So, the wealth industry should stay in good shape.The research can be seen as further muddying the outlook for the global wealth market, contributing as it does a figure at odds with other market estimates made over the past 12 months.The latest edition of the Merrill LynchCapgemini World Wealth Report, a benchmark industry study, put collective high net worth individual (HNWI) wealth at $37.2 trillion at end-2006; a study from the Boston Consulting Group put that figure at $97.9 trillion, albeit having factored in mass affluent individuals, a demographic scrupulously avoided by both the World Wealth Report and Oliver Wyman.Scorpio Partnership, on the other hand, suggested in October 2007 a figure of $24.4 trillion was the maximum amount of HNWI assets able to be banked by the wealth industry in 2007, with the actual total under management then standing at $16 trillion.For its part, Oliver Wyman believes 50 percent of total assets, or approximately $25 trillion, is currently professionally managed or advised
The big boys are on a roll
The good news European private banking continues to grow at a brisk pace The bad news
Singapore insists it will not relax banking secrecy
They allow for the necessary transparency in combating criminal activity, while safeguarding investors interest for safety and security, the official said.The EU is pressing for more transparency in Singapores banking regime and participation in the EU savings tax directive, so the MAS position could undermine talks for a trade agreement between Singapore and the EU.Some members of Singapores Parliament told EU counterparts last month that they are planning legislative changes on their banking secrecy laws, triggering the swift MAS declaration
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Another good ?10tr year
European asset managers had another year of solid growth in 2006 this marked their fourth successive year of expansion, according to the latest survey on the industry by consultancy McKinsey & Company. But the rate of asset growth fell to 12 percent in 2006, down from 18 percent the previous year and below the average of the past three years of recovery from the plunge of securities market after the dotcom bust. Still, this was enough to lift total assets from 8.9 trillion to just above the 10 trillion level for the first time.Growth in institutional assets continued to outstrip retail investor growth but, at 14 percent and 8 percent, respectively, both rates were lower than in 2005.Performance effects once again accounted for two-thirds of the growth in assets under management (AuM), while overall net inflows of 4 percent are at the lowest level seen over the past four years and are on a par with flows in 2004.Italy, Spain and Portugal actually experienced outflows AuM growth in the US, by comparison, was higher at 17 percent, and long-term net inflows contributed 4 percent double the figure of 2005.Operating profitsThe average operating profitability of European asset managers was up, improving from 16.1 basis points (bps) in 2005 to 16.8 bps in 2006 thanks to higher revenue margins offsetting increasing cost margins, McKinsey found.Total profits rose 20 percent, reaching 16 billion and surpassing even the boom levels of 2000
UBS winds down offshore banking for US clients
Some analysts believe the time will eventually come when even large Swiss private banks have to decide to drop offshore business completely, leaving small houses in Geneva as the main offshore promoters from Switzerland.It is understood that tougher US anti money-laundering and terrorist regulations, such as the USA PATRIOT Act, were a major factor behind UBSs decision.The bank itself said that a strategic realignment involving winding down US offshore services enhances our ability to ensure compliance with applicable laws and regulations.In a statement, UBS added: We focus on servicing our US clients within the respective specialised units These are our US wealth management operations for investors wanting to invest their assets in the US and UBS Swiss Financial Advisers SFA in Switzerland for investors with an international profile. This latter unit is a Zurich subsidiary set up specifically to meet US regulatory requirements but is excluded from Swiss banking secrecy on securities transactions.About 60 private bankers in Zurich, Geneva and Lugano are affected by the wind-down, and a number may transfer to the SFA unit.With 440 branch offices, UBS claims that it is already one of the leading wealth managers in the US and is ideally placed to service its clients locally
Taxing the rich foreigner
The rich, such as hedge fund managers and people in City of London finance, can easily shift their domicile abroad and so deeply damage the UK economy.A growing chorus of protest has greeted government proposals to tax wealthy individuals who have taken up residence in the UK These non-domiciled individuals, who spend an estimated £17 billion ($33.7 billion) in the UK annually, could severely harm the economy if they fled abroad, according to warnings in the wealth management industry.Most of the UKs estimated 111,000 non-doms would be hit by new rules that ban the use of offshore mortgages and trusts to pass off UK earnings as tax-free income generated overseas, according to tax and accountancy specialists.And signs that some rich non-doms are already moving their domicile have emerged
UBS – reaching a turning point
This is raising hopes that it could at last be turning the corner, as long as it can stem client outflows from its private banking operations.UBS, bruised by the global financial crisis and deeply embroiled in the subprime debt debacle with an accumulated $42 billion of write-downs, is sparking hopes it could at last be over the worst of its problems.After working off tarnished debt and taking further measures to restructure, the bank said it may gain market share and post a modest profit for the third quarter of this year, returning to full profitability in 2009 This would be its first in 2008 after losses of about CHF11.8 billion ($10.5 billion) in the first-half of the year.One key to a full return of health will be a cessation of the haemorrhage of private client outflows, which saw $40 billion flee the UBS private banking and asset management divisions in the second-quarter, analysts said.Morgan Stanley analyst Huw van Steenis thinks UBS is seeing continued outflows and softer margins in asset and wealth management
UBS retreats from the ‘One Bank’ model
The move follows growing concern across the industry about investment banking dumping toxic products on private banking clients.The announcement of the retreat from the integrated model by UBS came after its second-quarter earnings results, which again showed how badly the subprime crisis has damaged the bank, and was unusually frank.Our review has clearly revealed the weaknesses associated with the integrated one firm business model, UBS chairman Peter Kurer said, in what was regarded an admission of has been discussed privately within the wealth industry for months the implicit contagion of vital private banking operations by high-risk trading and financing from the investment bankers.Kurer added, Some of these weaknesses such as the blurring of the true risk-reward profile of individual businesses are the source of substantial risk, as we have seen in the past few months