banks all saw strong growth in assets under management (AuM) in
2007, data compiled by Private Banker International shows. But with reputational blows and weaker equity
markets already taking their toll, market leaders UBS and Credit
Suisse may come to regard last year’s performance as the apex of
their asset gathering activities, at least for the current economic
cycle. For example, UBS, which had CHF2.13 trillion ($2 trillion)
in assets within its wealth management division at end-2007, has
reported that this figure fell to CHF1.8 trillion by the end of Q1
2008. At Credit Suisse, private banking AuM has dropped from CHF838
billion to CHF749 billion in the first three months of the
year.
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Though both banks have been endured heavy criticism over the
write-downs taken at their investment banks, the Swiss have
directed most of their ire at UBS. The world’s leading wealth
manager saw net inflows of CHF8.1 billion in Q1 2008, compared with
CHF40.3 billion in the first quarter of 2007, but acknowledges that
“in Switzerland, UBS felt the negative impact of its financial
losses on its reputation” (see
UBS starts damage limitation).
Credit Suisse reported stronger net new money figures in Q1 but
still suffered from the effects of lower market returns. Notably,
Credit Suisse saw a 40 percent year-on-year rise in net new assets
taken within Switzerland. Assets are up from CHF3.8 billion in Q1
2007 to CHF 5.3 billion this year, hinting that clients
disillusioned with UBS are nonetheless continuing to put faith in
the private investment banking model.
Indeed, with the exception of the two biggest players, whose wealth
management divisions alone are large enough to loom over their
competitors’ entire businesses, integrated models in their various
forms comprise the basis of the PBI data.
Swiss private banks, though focused on the wealth segment as
tradition dictates, frequently decline to separate investment
products or institutional clients from their private client
reporting. Though the data provides an accurate overview of Swiss
banks’ performance in 2007, a number of caveats remain.
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By GlobalDataA case in point concerns two of the institutions for which private
client data is available, Bank Sarasin and Vontobel. Across the
board, both banks saw similar growth rates in 2007, but while
Sarasin saw private client AuM rise by 22 percent, Vontobel
reported growth of just 10 percent within its private banking
division.
Figures from Banca del Gottardo are indicative of the price Swiss
institutions may have to pay if they are unsuccessful in their
attempts to harvest client assets. Fractional AuM growth of 0.2
million was coupled with an increase in net outflows from the
dedicated private banking division as the bank continued to
struggle unsuccessfully with the departure of client advisors in
2006.
Net outflows were CHF875 million in the first six months of 2007
and CHF1 billion in the latter half of the year. Banca del Gottardo
celebrated its 50th anniversary last year but the bank is unlikely
to have foresean its celebrations involving insurer Swiss Life
selling it to Generali’s private banking unit BSI for CHF1.9
billion in November.
At the Geneva private banks, the picture is more stable. Pictet,
Lombard Odier Darier Hentsch and Mirabaud all saw strong AuM growth
over the course of 2007, but alongside that progress comes
recognition that the mature domestic market may no longer provide
adequate growth potential.
For Pictet, the target is Eastern Europe. The bank already has
exposure to Russia through its successful funds business, and last
week announced the launch of a dedicated Russian Equities fund.
Russian private banking operations are now thought to be in the
pipeline.
Lombard Odier, meanwhile, is pushing into Singapore, having
obtained a merchant banking licence in the city-state last December
in a move that head of private clients Anne-Marie de Weck describes
as “a major step”.
Wegelin, the country’s oldest private bank, also performed well in
2007 courtesy of its exclusive focus on the domestic market. Michel
Dérobert, secretary general of the Swiss Private Bankers
Association, believes that mid-sized institutions are more likely
to suffer than dedicated boutiques.
“In previous years, some middle sized banks have had more trouble
than others – they had to become bigger by merging or being taken
over. But the small boutiques have been very successful and I think
they will be in future. Wegelin have opened offices all over
Switzerland and have had success in attracting the onshore market,”
Dérobert told PBI.
However, Dérobert warned that reputational damage at the top may
ultimately impact other Swiss private banks. “If the leader of the
pack has problems, at the beginning of course it’s beneficial for
others – but on the whole it is not good for the Swiss financial
centre.”
The third tier of Swiss financial institutions, the cantonal banks,
have not been included in the study because they remain principally
concerned with retail banking activities.
While banks such as Zurcher Kantonalbank, the largest cantonal
bank, do offer private and investment banking, industry analysts do
not believe that regional institutions have much scope for further
penetration into the wealth market.
Standard and Poor’s has, however, noted that high customer
penetration within regional customer bases has proved beneficial to
the initial development of fee-based private banking at cantonal
banks.
For the big guns, it is not just domestic activities that are of
concern. Signs are that pressure is growing in the major countries
against tax havens that are suspected of fostering tax evasion,
with Switzerland increasingly coming into the firing line.
Prosecutors at the Department of Justice are investigating whether
UBS and others were involved in tax evasion schemes that may have
been carried out through Liechtenstein. The Washington
investigation is reportedly being aided by a former UBS insider who
has talked with US prosecutors.
Prosecutors in Mannheim, Germany, have said they are considering
opening a criminal probe into allegations that UBS offered Germans
help in hiding funds from local tax authorities.
Separately, police in Brazil arrested a Credit Suisse banker in
late April amid allegations that he offered private banking
services in the country without a central bank license in the
latest clampdown on illegal money transfers. Police did not
identify the banker, but described him as a “high ranking
executive”.
At the same time, the European Commission is to recommend
tightening EU rules against tax evaders who use offshore accounts.
While Germany and Liechtenstein remain at loggerheads over tax
evasion, the EU’s finance ministers asked the commission in March
to step up a review of 2005 savings tax directive.
The Organisation for Economic Cooperation and Development
(OECD) is being urged to re-examine its list of tax haven
countries in a bid to bolster moves against tax evasion. France and
Germany are pushing for the reinstatement of laggard countries onto
the list of uncooperative tax havens run by the OECD, the body
co-ordinating global action against such havens.
Defending the role of Switzerland, Pierre Mirabaud, president of
the Swiss Bankers Association, said Swiss banks cannot be expected
to police foreign clients’ tax affairs. Still, there is growing
concern in Switzerland that its reputation as a financial centre
has been badly tarnished.
In a speech to mark the Swiss National Bank’s centenary, the
country’s top central banker Jean-Pierre Roth said a review of
corporate governance and a strengthening of rules was vital to
maintain the reputation of Switzerland’s as a top flight financial
centre.
“For a financial centre such as ours – which includes international
banks whose private banking arms generate substantial revenue and
consequently rely on having a spotless reputation – such action is
vital,” Roth said.
