Swiss banks’ business models face increasing threats if a government-led bilateral settlement between the US and Swiss authorities is not resolved quickly, according to Fitch Ratings.
Christian Kuendig, a senior director at Fitch Ratings, said the best option for Swiss banks would come in the form of a government-led settlement "with which client-confidence would be improved", not a "bank-by-bank resolution".
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Fitch’s comments came after Switzerland’s oldest bank, Wegelin & Co, was forced to close down on 4 January and pay a $57.8m fine to US authorities after admitting charges of conspiracy in helping more than 100 US taxpayers avoid paying up taxes to the Internal Revenue Service (IRS).
In a statement, Fitch Ratings said a settlement would also give banks the time to adjust their earnings and cost bases "to mitigate the rising litigation and regulatory costs or if the disputes with US and other authorities structurally damage their competitive position or business model."
The agency said the settlement would "allow the banks to refocus management attention on their core (non-US) private banking operations."
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By GlobalDataSmall proportion of AUM comes from US
According to consultancy WealthInsight, while Switzerland’s offshore assets under management (AUM) totalled US$2.1trn, or 27% of the global offshore private banking market, the total AUM emanating from North America was just 2.6%, or $55bn in 2011.
The repercussions of the potential indictments by US authorities could "be significant, take a long time to resolve and ultimately break the banks’ business models", said Fitch despite US offshore clients typically accounting for a small proportion of Swiss banks’ earning and AUM.
"Our view is that this global solution, this global settlement, would get rid of quite a bit of uncertainty regarding this whole situation, because clients do not like unanswered situations," Kuendig said.
Settlement terms
Kuendig said the settlement should come "as soon as possible", adding the Swiss government has actively tried to come to terms with a global settlement with the US since the beginning of 2012.
"Originally the intention was to agree to a settlement by the end of 2012," said Kuendig, " that didn’t happen and today our understanding is that Swiss government is still very much interested in getting this settlement with the US authorities and talks are still in progress.
Kuendig added, "I would expect that the US would want to rectify this situation."
Regulated exchange of information
The senior director also explained most Swiss banks "do not want an automatic exchange of information" with the US.
Those terms would mean US tax authorities would be entitled to send a request to Swiss banks and ask for a list of names of any account holder that might be subject to US tax laws.
Kuendig explained he understood most Swiss banks’ preference would be "a withholding tax system where, basically, the banks levy taxes anonymised on behalf of the tax authorities."
"They levy withholding tax account holders that are subject to the US tax law and then would send these amounts anonymised to the US tax authorities, without mentioning any names," he added.
