SWISS BANKS COURT RICH AMERICANS A DECADE AFTER TAX DRAMA

 

Introduction

Our last article looked at the continued strength of the US economy and why we believe financial service companies need to have a presence in the world’s most important market. The following article appeared a year ago in Reuters and examines more specifically the coverage of US clients by Swiss banks.

The only major Swiss player physically present in the US is UBS although Vontobel has been established in New York since 1984. Other Swiss banks in the US or looking to set up/return there (EFG in the former case and Julius Bär or Crédit Suisse in the latter) are targeting international clients with a particular focus on Latin America via Miami rather than New York.

By far the preferred method of Swiss banks to cover US clients is through the establishment of a SEC registered entity in Switzerland. There are probably over 50 such entities in Switzerland, a staggering number which has roughly doubled in the last four years. However, we believe that such a strategy can only scratch the surface of the US market and that there are only two or perhaps three actors that have anything like critical mass.

As a firm, Norman Alex is convinced that Swiss wealth management firms have to be present in the US market to maximise their chances of long-term survival. Whilst Switzerland makes sense as a secondary booking centre for large, internationally minded US clients, this market will remain relatively small. On the other hand, there is a huge pool of wealthy Europeans and people of other nationalities domiciled in the US, ill at ease with the ethnocentric broker dealer model and who would be delighted to open an account with a Swiss bank in the US.

This is why one of the focuses of Norman Alex is to use our presence in Switzerland and the US to help Swiss banks define a coherent strategy to develop the US market. Our Miami based partner, Jack Staley, has experience of running major banks in the US, London and Zurich and is perfectly placed to offer advice in this area. Please contact me for more information by email at ivoralex@normanalex.com or by phone at +1 315 557 6169.

 

Swiss banks court rich Americans a decade after tax drama

ZURICH (Reuters) – Ten years after a booming business with discretion-minded U.S. clients cost Swiss banks billions of dollars and put an end to Swiss banking secrecy, the world’s private banking hub is looking to reestablish ties with American customers.

Facing a highly competitive and largely saturated Swiss market and sluggish growth prospects in Europe, Swiss money managers are now courting wealthy Americans who might be seeking to invest some of their cash abroad. More billionaires hail from the United States than from anywhere else.

Vontobel (VONN.S), for example, is to buy rival Lombard Odier’s international portfolio of U.S.-based clients with 1.2 billion Swiss francs ($1.21 billion) in assets under management as it expands in the region. [nL8N1WZ0QD]

That will boost the 2.4 billion francs Vontobel’s own North American-focused Swiss Wealth Advisors now manages.

“North America is one of our focus markets in which we intend to achieve above-average growth,” Georg Schubiger, head of Vontobel Wealth Management, said on Friday.

The bank aims to manage 5 billion Swiss francs for U.S. private banking clients, Chief Executive Zeno Staub said.

UBS (UBSG.S), Switzerland’s biggest bank and the world’s largest wealth manager, has maintained a large U.S. presence even after $780 million in settlements with U.S. authorities over undeclared assets U.S. clients had held with the bank.

It books onshore business for North American clients in offices in New York and across the country, accounting for roughly half the bank’s wealth management business.

UBS, like other Swiss money managers, is looking to court U.S. expats as well. After merging its North American and international wealth management businesses this year, it sees opportunities with U.S. customers living and booking money abroad.

The bank is expected to announce more details at an investor day on Oct. 25.

 

Complex and expensive

Size matters now that special regulations from U.S. authorities — particularly the Foreign Account Tax Compliance Act and also from the Securities and Exchange Commission (SEC) — have made offshore business with American customers more complex.

“As a rule of thumb, you need about $2 billion in managed assets, which is quite a lot for small banks in a single market,” Ralph Kreis, director of consulting firm AlixPartners, said.

Business below that threshold is worthwhile only for institutions focusing on a specific segment or particularly profitable customers, he added.

Many banks have faced challenges in building or rebuilding business with U.S. customers, Kreis said.

This has dissuaded major private banks — including Switzerland’s second-biggest, Credit Suisse (CSGN.S), and third-largest listed bank, Julius Baer (BAER.S) — from offering wealth management services within the United States.

While the U.S. domestic private banking market is largely dominated by local players like Morgan Stanley (MS.N), Bank of America Merrill Lynch (BAC.N) and Wells Fargo (WFC.N), Swiss banks see lucrative opportunities in courting Americans seeking to do safe business offshore.

 

Safe haven

Very wealthy individuals tend to diversify their assets over several regions, and Swiss banks see a role in offering tax-compliant investment opportunities in a stable country with a crisis-proof currency.

“We offer a safe haven,” said Vontobel manager Patrice E. Humbel, responsible for the U.S. market.

“Two-thirds of our customers have European DNA. They are Germans, Italians, French or Swiss who are first-, second- or third-generation U.S. citizens.”

Above a certain size, banks need a licence from the SEC to be able to offer investment products to U.S. citizens.

“In Switzerland, there are about 40 to 50 firms with this licence,” AlixPartners’ Martin Buechel said.

That number has roughly doubled over the last four years, said Anne Liebgott, a consultant who provides information for Americans seeking Swiss wealth management services.

For practical and regulatory purposes, many banks separate their U.S. business into distinct units that operate independently and offer tailored products.

Geneva-based private bank Pictet said it now manages $6.2 billion in assets out of its Pictet North America Advisors division, while UBS subsidiary Swiss Financial Advisors said it manages around 5 billion Swiss francs.

($1 = 0.9957 Swiss francs)

(Reuters).

 

 

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