Switzerland's Wealth Managers Bank On A Future In Asia

(MENAFN- Swissinfo) The rich have always been welcomed in Switzerland. To spend, but more importantly to hoard. Across the country, in secretive locations, banks operate underground vaults and storage facilities – often converted military bunkers that have been hewn from mountain rock. Some have no roads nearby and can only be accessed by air.

At one facility 40km south of Lucerne, storage company Brünig Mega Safe is carving into an imposing mountain and plans to offer“professional and secure storage of assets in underground caverns” for anything from gold bars and stock certificates to artworks and classic cars. Prices start at $500,000 (CHF430,000) for a 25 sqm vault.

For three centuries, the country has also offered the rich reliable, specialist advice on managing and investing their money. In times of war, political turmoil and rising taxes, the country's stability and geopolitical neutrality – combined with its strict adherence to banking discretion – supported a thriving and world-leading wealth management industry.

But, in recent years, those foundations have begun to crack – and its rivals in Asia are looking on. Under international pressure, Switzerland has been chipping away at its banking secrecy laws that restrict banks from passing on details about their clients to governments. And the country's decision to sanction Russian oligarchs following Moscow's full-scale invasion of Ukraine nearly three years ago has dented its reputation for international neutrality.

Meanwhile, the collapse last year of Credit Suisse – the country's second-biggest bank, trusted by millions of wealthy clients globally – has cast a shadow over Switzerland's claim to be a stable nation with a sturdy financial services sector. The remainder of the Swiss banking sector is aware of what this means.“Singapore and Hong Kong are going to be more and more important competitors to Switzerland as global hubs,” says Giorgio Pradelli, chief executive of Swiss private bank EFG, which operates in all three countries and is increasingly focused on Asia.

In fact, Hong Kong is set to overtake Switzerland as the world's biggest offshore wealth hub by 2028, with Singapore not far behind. Hong Kong would then account for $3.2 trillion out of the total $17.1 trillion in global offshore wealth assets, compared with $3.1 trillion for Switzerland and $2.5 trillon for Singapore, according to Boston Consulting Group estimates.

In the five years to 2028, Hong Kong's cross-border wealth market is on track to grow by 6% a year in terms of assets, compared with 3.6% in Switzerland and 8.5% in Singapore.

“Switzerland will always be our competitor, but we are not afraid,” says Jason Fong, a 27-year banking and asset management veteran who has been tasked by the Hong Kong government with attracting family offices to the Chinese territory.“They are crumbling and we are in a very advantageous situation.”

Much has changed since the early 18th century, when France's Catholic kings tapped the banks of Geneva for funds, but tried to conceal their dealings with the city's Huguenot financiers, fearing a sectarian backlash at home. An edict from the Great Council of Geneva in 1713 prohibited bankers from sharing client registers with the authorities.

This content was published on Feb 22, 2013 But as the industry developed from humble beginnings, and grew into an international leader, it picked up many black marks along the way that still hang over today's private banking players.“Originally all the banking houses across Europe were trading companies,” Youssef Cassis, professor of economic history at the European University Institute in Tuscany.“They...

Geneva's commitment to banking discretion helped elevate it into a European financial powerhouse and drew in Swiss mercenary soldiers who were looking to safeguard their money made from fighting abroad.“The Swiss laid the foundation for today's global wealth management model,” says Iqbal Khan, co-head of wealth management at UBS.“Its heritage comes from the duty of care for others' property and the principle of self-control.”

Secrecy became enshrined in Swiss legislation with a 1934 banking law, which set out that bankers who disclosed client information could be jailed. Initially, European Jews fleeing persecution set up Swiss bank accounts to protect their valuables, but later such accounts were favoured by Nazis to store their looted wealth. A Swiss bank account soon became the financial product of choice for the rich who did not want too much attention on their fortunes' sources.

This commitment to clandestine banking attracted despots and oligarchs throughout the 20th century, while tax-evading lawyers and country doctors from neighbouring European countries made up a large proportion of Swiss private banks' clients. It was in the middle of the 20th century that Swiss bankers attracted the nickname of the“gnomes of Zurich” from British politicians for their ability to hoard heaps of gold in underground vaults. It was soon regarded as a badge of honour. Swiss bankers took to answering calls from British colleagues by saying:“Hello, gnome speaking.”

More recently, though, under pressure from tax authorities around the world following a series of high-profile scandals over the flows of illicit money, Switzerland has acquiesced to demands for greater transparency around its banking sector.

In 2017, it signed up to the international automatic exchange of information standard, which requires Swiss financial institutions to share details on their clients with the countries where they are tax resident. More than 100 countries are signed up to the same standard, which has all but killed off Switzerland's allure for tax evaders.

This content was published on Jan 1, 2017 The international convention on the automatic sharing of banking information entered into force on January 1.

The final blow for Swiss banking discretion came two years ago with the Suisse Secrets scandal, where documents detailing the accounts of 30,000 Credit Suisse clients were leaked to a consortium of international media outlets. Among those named in the cache of documents – which dated back to the 1940s – were war criminals, autocrats, oligarchs, drug smugglers and human traffickers.

The collapse of Credit Suisse prompted the Swiss government to devise a series of proposals to bolster the banking system, including giving more power to the domestic financial regulator and potentially increasing UBS's capital requirements. Executives in Zurich fear that if the new measures are too draconian, they could ultimately put their banks at a disadvantage to their foreign rivals.

“Financial centres like Hong Kong, Singapore and the US are aggressively competing, and making great progress, for the offshore wealth management crown that Switzerland holds today,” UBS chief executive Sergio Ermotti said in June.“Foreign financial centres would benefit if Switzerland were to restrict its ability to maintain a leading presence abroad.”

Switzerland's reputation for neutrality on the world stage has proved enticing over the decades for the global and mobile rich, especially in times of rising geopolitical tension. Yet this, too, is being tested. The decision by Switzerland following Russia's invasion of Ukraine to sign up to the US and EU sanctions regimes has led to questions from clients about whether the country is still an impartial player.

A recent report from the Swiss Bankers Association lobby group identified Switzerland's adherence to international sanctions regimes as the top geopolitical risk facing the country's wealth managers. The immediate effect of implementing sanctions was Swiss banks pulling out of Russia and jettisoning Russian clients, many of whom switched their offshore bank accounts to the Middle East.

Jimmy Lee, head of Asia-Pacific at Julius Bär, has run several western banks' Singapore and Hong Kong operations over the past three decades. He says he is often asked by clients whether Switzerland is still neutral.“We explain to them that Ukraine is at the doorstep of Switzerland and they are taking a stance,” he says.“If your neighbour's house is on fire, you cannot stay neutral.”

The Ukraine war has brought Switzerland closer to NATO, with a recent paper commissioned by the country's defence ministry suggesting Swiss troops could co-operate in military manoeuvres with other states for the first time since 1515.

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