Swiss banks face level playing field

There’s a lot for Europe’s private bankers to think about, especially as Geneva and Zurich are set to lose their traditional headstart. Economic threats against the bankers of Geneva and Zurich are beginning to loom large. The Boston Consulting Group’s Global Wealth Report 2003 identifies three sources of instability to the traditional notion of Swiss private banking:

• Tax amnesties. The recent Italian amnesty brought $50bn (E45bn) back to Italy from Switzerland, the German authorities have followed suit and the Belgians will be next.
• Withholding tax. While exact rules have yet to be published, income paid to EU residents by Swiss banks will have tax withheld.
• Increasing attacks on bank secrecy. The US has negotiated an agreement with the Swiss, the OECD has broad agreement to access information and a deal with the EU is next. Tax and secrecy According to the report’s co-author, Christian de Juniac, “If the advantages of tax and secrecy go away, the Swiss will have to fight on a level playing field on the basis of skills as asset managers.” This is likely to lead to further consolidation. Growing fixed costs required to be competitive in private banking have already led to the merger of Lombard Odier and Darier Hentsch, creating a bank with client assets of SFr138bn (E90bn). Union Bancaire Privée (UBP) has acquired Discount Bank and Trust, boosting assets by 34 per cent to SFr78bn. And UBS combined several private banking units into a new single entity, Ehinger & Armand von Ernst. For such mergers to succeed, reduction in product manufacturing costs is a pre-requisite. “One institution found itself with a product portfolio that had grown so unwieldy that management couldn’t even agree on how many products the bank had,” revealed Mr de Juniac. Support costs had consequently spiralled. Lack of attention This lack of attention to product development is one of the key problems facing private bankers, claimed the report. Wealthy individuals who lost $1900bn last year are demanding better value in products and services. Our cover story looks at the fund selection dilemma. Sectors such as Russian equities and emerging market bonds have performed better than most others over the short and medium term. But few private bankers have bothered to look at them. They blame the clients for being too risk-averse to consider the underlying funds. But Mr de Juniac blames the banks. “The problem is that wealth managers are not spending enough time selecting funds or allocating assets, nor do many have the right tools to do so,” he added.