Swiss banks weather the storm

Institutions survive attacks on secrecy

When Switzerland pushes the button to send data on offshore bank accounts to foreign tax agencies this northern autumn, it will be doing what was once virtually unthinkable: abandoning the absolute secrecy once granted to anyone parking their cash in Zurich or Geneva.

The automatic exchange of account information with other European countries will be the last chapter in a saga that began with the arrest of former UBS Group banker Bradley Birkenfeld in 2008, cost Swiss banks more than US$6 billion ($9.1b) in fines, and prompted criminal probes and travel bans for bankers.

The “economic war”, as UBS chief executive Sergio Ermotti referred to the crackdown, ultimately didn’t end Switzerland’s appeal as a place for the world’s wealthy to park their money.

“Supposedly”, the end of banking secrecy was going to be “the death knell for Swiss banks — they would’ve lost their competitive advantage and gone out of business,” said Mark T. Williams of Boston University. “Ten years later, that is clearly not what happened.

“I think Switzerland continues to be very strong in regards to asset management. As a tax haven, not so much.”

The crackdown started in 2008. Led by the US and soon vigorously pursued by Germany, France, Italy and others, it put the spotlight on how the rich hid money from the taxman with the help of Swiss banks.

For years, some bankers avoided foreign travel for fear they might get arrested, like former UBS wealth management head Raoul Weil, picked up in Italy, extradited to the US and UBS was among Swiss banks hit by hefty US fines. subsequently cleared by a Florida jury.

“Some bankers were scared. If you had been related to wealth management with US clients anywhere in the world, there was a moment where you decided to no longer travel,” said Matthias Schulthess, a partner at Schulthess Zimmermann Executive Search.

Parliament in Bern allowed the handing over of client data to Washington in 2010 to shield UBS, which had to be saved two years before with a US$59.2b government rescue package. Financial institutions began regularly sending account details to the US in 2015. Switzerland will now also send details on account holders to countries including Canada, Japan and the European Union’s 28 member states.

Today, Switzerland is still the world’s pre-eminent offshore wealth management hub. Boston Consulting Group this year found it had US$2.3 trillion of such assets, twice as much as runner-up Hong Kong. That is partly because stability, a wellfunctioning judiciary, low inflation and the franc’s status as a haven contributed to Switzerland’s appeal.

The end of banking secrecy was a “big blow” to Swiss finance, especially the smaller banks, said Nuno Fernandes, dean of Catolica Lisbon School of Business and Economics. “But it’s also true that many people expected it to be worse, and there was no disappearance of the sector.”

Profits at Credit Suisse and UBS have been less than half of pre-crisis highs in recent years, but have also become more predictable as their focus shifted from high-risk investment banking to a tamer version of wealth management.

Having lost their “competitive advantage” based on secrecy, banks in Switzerland have “been quite good” at weathering the crisis, said Sebastien Mena, senior lecturer in management at Cass Business School in London. “Of course they had to pay huge fines.”

Today, Switzerland is still the world’s preeminent offshore wealth management hub.