June 17, 2014 / 4:35 PM / 5 years ago

U.S. tax case deal to trigger Swiss bank consolidation

GENEVA (Reuters) - An expected resolution to the U.S. tax evasion probe into Swiss banks will likely be a catalyst for consolidation in the country’s private banking industry, senior bank executives say.

Georg Schubiger, Head of Private Banking, Bank Vontobel, speaks during the Reuters Global Wealth Management Summit in the Thomson Reuters Geneva headquarters, June 16, 2014. REUTERS/Pierre Albouy

“At the moment there’s not a lot of acquisitions because of the risks associated and uncertainties,” Georg Schubiger, head of the private banking arm of Vontobel Holding AG (VONN.S), told the Reuters Wealth Management Summit in Geneva.

“If that were resolved, then probably acquisitions would happen more frequently and the larger banks would play a more active role in consolidation,” Schubiger added.

Other speakers at the Summit, also taking place at Reuters offices in New York and Singapore, also saw scope for more acquisitions once the U.S. tax issue has been resolved - part of a slew of changes hitting one of Switzerland’s mainstay industries.

Between 2000 and 2012 the pool of Swiss banks shrank by around a fifth to stand at just under 300 institutions and the costs of increased regulation associated with the tax crackdown have long been expected to add to pressure on smaller players to sell up or close down.

But the trend has been put on hold because of uncertainties related to the U.S. investigations, which have led to multi-million dollar fines on leading players UBS UBSN.VX and Credit Suisse CSGN.VX and cast a pall of uncertainty over others in the sector.

Some 106 Swiss banks have reason to believe they may have helped wealthy Americans evade taxes and are facing fines and high legal costs. They have until July 31 to turn over the necessary information to the U.S. Department of Justice (DoJ).

The head of international operations for British private bank Coutts, whose Swiss arm is among the 106, told Reuters he hoped it would reach an agreement with the DoJ by the end of the summer.

Juerg Zeltner, head of private banking at UBS, which in 2009 paid $780 million to settle charges it sheltered U.S. citizens from the taxman, said the tax case would remain a burden for those involved.

“It’s a poison pill until it’s solved,” Zeltner told the Summit.


Despite the overhang of the tax case, there have been some deals over the past five years. Some of the largest have been foreign banks exiting the Swiss market - such as Julius Baer’s BAER.VX purchase of the non-U.S. wealth management business of Bank of America (BAC.N) subsidiary Merrill Lynch in 2013, and Vontobel buying Commerzbank’s (CBKG.DE) Swiss arm in 2009.

All told such changes are reshaping an industry which remains important in the Swiss economy, where financial services provide more than 5 percent of all jobs and which ranks as the world’s largest offshore center with roughly 2 trillion Swiss francs ($2.2 trillion) in assets.

Margins in historically profitable private banking have been eroded by the crackdown on untaxed offshore assets, as well as investors’ desire to park a large portion of their cash in low-risk holdings, which generate more modest returns for banks.

Executives said the consolidation and tighter margins meant pre-crisis salaries and employment figures were things of the past. The head of Coutts’ international operations Alexander Classen even suggested three out of every 10 jobs in Swiss wealth management could be gone by 2017.

“We’re still going through a period of consolidation and transformation,” Classen told the Summit. “I wouldn’t be surprised if, in two to three years from now, we have a population of staff employed by the wealth management industry (in Switzerland) that would be 20 to 30 percent below what it is today.”

Classen said the industry would have to make due with less generous returns in future.

“I think we will have to content ourselves with lower margins, that’s for sure,” said Classen. “The margins we’ve known five, 10 years ago are nice experiences of the past.”

Editing by Alexander Smith and David Holmes; Follow Reuters Summits on Twitter @Reuters_Summits

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