Just over 500 years ago, Christopher Columbus landed in Hispaniola and the European conquest of the Americas had begun. A few years later Ponce de Leon discovered the peninsular of Florida and the first attempts were made by England to colonize America. In 1607, the first successful English colony was established in Jamestown.
Almost 400 years later, the European approach to America seems to have become more timorous. The only European bank with a balance sheet in excess of $200bn is HSBC and it is debatable even if HSBC can be considered as European. The only European private bank with a significant presence is UBS and the number of European “pure player” private banks established in the US can probably be counted on one hand.
Whilst private banking is not necessarily a leading activity for most European global banks, one would expect Swiss banks in particular to be more represented on the other side of the Atlantic. So why is this not the case? Tax evasion fines imposed in the past totalling several billion dollars cannot be the explanation. The issues involved relate to the behaviour of the banks in the past and almost all of the fines have been paid. And whilst the US banking authorities are still inclined to levy fines for certain regulatory and disclosure failures, these fines are relatively small compared to the potential profits to be made in the world’s largest economy. Finally, love him or hate him, Donald Trump has none the less eased the regulatory environment in the US.
It’s estimated that US households possess over $100 trillion of wealth, of which about three quarters relates to financial assets. Crédit Suisse’s global wealth report cites almost 19m millionaires and over 80.000 ultra-high net worth individuals. According to Forbes, there are 705 billionaires in the US compared to “only” 285 in China and the US billionaires have net worth greater than that of the billionaires in the next eight countries. So why aren’t Swiss banks lining up to gain a share of the wallet?
In my opinion, the main reason is the notorious difficulty in developing a successful private banking franchise in domestic markets, especially one as mature as the US and as well-serviced by its own national banks. Why would a born and bred New Yorker open an account with a foreign bank when he has world leading American banks next door? The answer is that he probably wouldn’t unless it were for geographical diversification or because the American bank was owned by a foreign institution. HSBC, UBS and Santander have opted for the latter solution but this option is more difficult for smaller banks.
The first solution has been the preferred choice for Swiss banks, not by establishing a presence in the US but rather by setting up SEC registered entities in Switzerland. There are probably over 50 such entities at the moment, a figure which has roughly doubled over the last four years. However, according to my calculations, only a handful have developed anything approaching $1bn of assets. Compare this with the fact that about 10% of US billionaires are foreign born and that the EB-5 visa programme admits up to 10.000 high net worth foreigners per year to the US. Indeed, the number of wealthy Europeans in states such as New York, California and Florida must number in the tens of thousands if not more. If each European has net worth of at least $1m, this equates to a potential market of up to a trillion dollars.
Whilst it would be a simplification to presume that such people will automatically have a preference to open an account with a European bank, it’s not unreasonable to assume that a certain percentage would. US banks are notably ethnocentric and dollar focused when it comes to the products they offer and there is a clear demand with many investors for a more international approach. In the humble opinion of Norman Alex, European banks and the Swiss in particular should look more closely at this market and rediscover some of the spirit of adventure of the ancient explorers if they too wish to become actors on the global stage.