Swiss banks still luring foreign cash: lobby group

ZURICH (Reuters) - Foreign capital is still flowing into Swiss private banks despite the global financial crisis and some tough challenges faced by Switzerland's flagship bank UBS AG (UBSN.VX), the country's banking association said.

Swiss banks' client money has shrunk about 17 percent throughout 2008, data from the Swiss National Bank show, but this is due to a fall in asset prices rather than disaffection by foreign investors.

"There are still inflows, a lot of net new money from foreign countries," Urs Roth, CEO at the Swiss Banking Association, told Reuters in an interview this week.

"But it is a daily challenge for the industry to preserve the customers' portfolios," Roth, who is in regular contact with the country's top wealth manager, added.

Switzerland is the world's biggest center for offshore banking, the industry segment which specializes in offering banking services to non-resident clients, with a market share of almost 30 percent according to the Boston Consulting Group.

Swiss banks managed assets worth around 4.5 trillion Swiss francs ($3,716 billion) at the end of September, 58 percent of which are offshore assets -- down from 5.4 trillion at the end of 2007, reflecting a fall in the price of nearly every asset class as a result of the crisis.

Roth said the financial difficulties faced by UBS, which has made nearly $49 billion of writedowns and has seen its top wealth management official indicted in the United States, have not damaged the bank's name among foreign investors, but rather at home, where rivals have snatched market share.

"I do not see at this time that UBS's image has been hurt significantly on the international marketplace," Roth said. "This is perceived as a global issue, all of the leading banks are more or less involved," he said.

UBS said on November 4 it suffered net client money outflows of about $49 billion in the third quarter, although it added that the pace of withdrawals had slowed since the state stepped in to help it with a 6 billion franc cash injection.

LEADING ROLE

Roth said Switzerland retained a leading role as a financial safe haven due to its stability and relative economic resilience in the crisis, even though pressure is mounting from the United State and Europe to lift its bank secrecy laws.

But rival financial centers are not sitting still. While the United States remained by far the largest private banking market with 40 percent of global wealth, Britain was the closest European rival to Switzerland with 10 percent of wealth against 9 percent for the Alpine country, Roth said.

"We do not feel threatened but we have fierce competition. The UK financial service industry is the most important competition when we look at wealth management," Roth said.

Further afield, new offshore centers such as Singapore are readying to steal market share even though so far they have not done much damage to Switzerland. And the European Union aims to crack down on tax evasion by taxing interest from savings by EU citizens hidden in bank secrecy strongholds, including Switzerland.

"We do not see at these points large amounts flowing out of Europe into Asia, but when we look at the European Union's savings tax directive, clearly there are some push factors around that may induce customers at some point to place their portfolio in Singapore or other centers," Roth said.

"That can be a threat for the entire European banking industry."

(Editing by David Holmes)