GENEVA: When US President Barack Obama made the case last month for the FBI to access encrypted Apple phones, he warned that if it was not granted, everyone would be “walking around with a Swiss bank account in their pocket”.
However, a global clampdown on tax evasion, led by US law authorities, means a Swiss account is no longer such an easy place to hide ill-gotten gains.
That raises the question: without its famed reputation for secrecy, what is the point of a Swiss bank account?
The answer on Zürich’s upmarket Bahnhofstrasse or Geneva’s Rue du Rhône is not straightforward.
Swiss private banking is in the middle of a historic upheaval, hit by turbulent global financial markets as well as a collapse in demand triggered by tax “regularisation”.
The number of private banks is shrinking while rising regulatory costs are eating into the profit margins of those that remain. But industry stalwarts refuse to retreat. Instead, they are spearheading expansion into emerging markets — and emphasising other strengths that they say will ensure continued global dominance.
“Private banking was invented in Switzerland,” says Boris Collardi, chief executive of Julius Baer, invoking a history that stretches back to the 15th century. “This is a place where you keep your money . . . an island in the world for stability, solidarity.”
Mr Collardi’s bank manages almost SFr300bn ($308bn) of client assets, up 75 per cent in five years. Its growth comes amid a broader industry decline: there are only about 150 Swiss private banks now, down from 350 in 1995.
“The agreements Switzerland has signed since 2009 on exchanging bank information have been a game-changer,” says Jürg Zeltner, head of wealth management at UBS, the world market leader.
Since paying a $780m fine to settle with US authorities in 2009, UBS has ensured its global business “actively promoted a stand for transparency on fiscal and tax matters”, a decision that Mr Zeltner says has cost the bank more than SFr30bn in client assets.
Still, the shadow of the old ways lingers. When the Panama Papers leak recently revealed details about the widespread use of offshore accounts to shelter the wealth of the super-rich from scrutiny and taxes, three Swiss banks were listed among the top 10 lenders that created such structures.
And the head of Switzerland’s financial supervisor, Finma boss Mark Branson, announced earlier this month that 14 of the roughly 300 institutions he oversees had been given a “red” rating for their money laundering risks.
Swiss bankers defend their use of offshore accounts, despite the negative publicity from the Panama Papers.
“The hypothesis being portrayed is that if you’re hiding something, it is because it’s illegal,” says Mr Collardi. “That’s not necessarily true. For most people it’s protection of privacy, succession, estate planning.”
“The reputation of Switzerland in the world with clients is better than you would think when you read the press,” says Tobias Unger, deputy chief executive at Falcon, a midsized Swiss private bank. “If you have something to hide these days the first destination is not Switzerland, it’s the US.”
Swiss bankers believe they still provide services that others cannot. They speak more languages, operate accounts in more currencies and issue a wider variety of national tax statements than rivals, Mr Unger argues.
He adds that Swiss banks still do a better job of protecting people from prying eyes than those elsewhere.
A banker asking a colleague about a celebrity client in Zurich would be given short shrift but “if the same thing happened in England, the guy . . . even talks about it [the client] at dinner parties,” says Mr Unger.
Mr Zeltner argues that Swiss banks, like technology companies in Silicon Valley, have benefited from a “cluster” effect. “When it comes to managing wealth and the wealthy, it’s Switzerland that has the experience,” he says.
The country’s banks have worked to improve the financial performance they deliver to clients, which Andreas Venditti, banks analyst at Vontobel, says has “historically not been great”.
Are clients impressed? Executives at “family offices” — the companies which manage portfolios for the world’s rich — dispute the uniqueness of Swiss banks, especially large ones. One says that once banks get to a certain scale, their defining characteristic is size, not nationality — “They [big Swiss banks] are like the big Americans”.
“The Swiss tend to bank with Swiss private banks,” says Jorge Frey, managing partner at Zurich-based family office Marcuard. “Foreigners are considering more and more international institutions.”
Swiss banks, he says, still benefit from their experience and emphasis on customer service but “unluckily, what has distinguished [them] from the Anglo-Saxon banks is vanishing.”
American private banks — the other significant force in the global industry — say they are taking on the Swiss, even close to and on their home turf. James Holder, head of private banking for northern Europe at Citi, says his bank can “more than adequately” cater for clients “who need global delivery management.” “Just being a Swiss-owned or Swiss-registered bank doesn’t deliver results,” he says.
Still, Switzerland remains the world’s biggest centre for offshore funds, and the Alpine country’s banks have become dominant forces internationally. Three Swiss banks — Credit Suisse, UBS and Julius Baer — are among Asia’s five biggest wealth managers, as ranked by Asian Private Banker. UBS and Credit Suisse are the only foreign banks to feature in the 12 biggest wealth managers in the US, according to the latest Barron’s Penta rankings.
International expansion — particularly to Asia — features high on the agendas of Credit Suisse, UBS and Julius Baer while other Swiss banks are targeting Russia, Africa and the Emirates.
Scores of smaller Swiss banks are also targeting international growth. They know that they will have to rely on more than their old strengths to make their expansions stick. “[We must] be better when it comes to products,” says Mr Unger. “Historically, that was not so good . . . we had a mandate not to lose it [money] and ideally protect it for inheritance and from prying eyes or be tax efficient.”
