Wealthy emerging-market clients are flocking to Switzerland as a haven from instability, filling a gap as Americans and Europeans flee a crackdown on tax evasion. Customers from developing economies deposited a record 52% of the 1.96 trillion francs ($2.3 trillion) held in offshore Swiss bank accounts last year, according to Boston Consulting Group. Their share may climb to 63% by 2015 from 37% as recently as 2007, the firm said.
Last year?s handover of UBS accounts to the US Internal Revenue Service has tarnished Switzerland?s reputation for protecting the secrets of millionaires. As the private banking model evolves, a scene in Oliver Stone?s 2010 ?Wall Street? sequel where corporate raider Gordon Gekko repatriates $100 million from a Swiss account evokes a bygone age.
?For most banks, business with American clients is incredibly complicated and will cause more trouble than it?s worth,? said Peter Damisch, a partner Boston Consulting in Zurich. ?There will be a big shift from mature markets toward emerging markets.?
North American assets will fall to less than 30 billion francs in 2015 from a peak of about 150 billion francs in 2007 and 60 billion francs last year, Boston Consulting estimates. Swiss offshore assets will grow at an annual rate of 2.5% during the next five years as money from West Asia, Africa and Latin America outweighs redemptions from European clients, Damisch said.
While bank secrecy helped Switzerland attract 27% of the world?s offshore wealth, most undeclared assets are in the country for ?stability reasons,? according to the International Monetary Fund. Those ?safe-haven attributes? are drawing investors amid political upheaval in West Asia and growing speculation that Greece may be the first country in the 17-member euro region to default, the IMF said on May 26. ?The less stable the world is, the better it is for Switzerland,? said Teodoro Cocca, professor of wealth management at Johannes Kepler University in Linz, Austria.
Switzerland has been a financial refuge for fugitives from unrest since Geneva?s Pictet & Cie. and Lombard Odier Darier Hentsch & Cie were established more than 200 years ago to safeguard the riches of aristocrats fleeing the French Revolution.
UBS, Switzerland?s biggest bank, attracted 11.1 billion francs at its wealth-management unit in the first quarter after customers withdrew 198.7 billion francs in the nine quarters through June 2010. Funds from emerging market investors and net new money at its Swiss division countered withdrawals by Europeans from cross-border accounts, the Zurich-based bank said.
The commitment to regulatory and tax compliance will put ?tremendous pressure on Switzerland? as western European clients repatriate their wealth or transfer it to other investments such as real estate, Boston Consulting said in a May 31 report.
As Swiss wealth managers lose lucrative cross-border clients, they must spend to build onshore networks in Germany, Italy and other European countries.
The Swiss government hopes the country?s commitment to attracting only taxed assets will boost its appeal.
?That increases the legal security and the competitiveness of Switzerland as one of the world?s top financial centers,? Michael Ambuehl, state secretary to the finance ministry, said in emailed comments to Bloomberg News.
Switzerland may get more attractive should it negotiate withholding taxes with the UK and Germany on the interest, dividends, capital gains and investment income earned by clients with offshore accounts. While imposing additional administrative costs on Swiss banks, the arrangement would allow them to keep customer identities secret.
Inflows from emerging markets may help Swiss offshore assets rebound to about 2.3 trillion francs by 2015, according to Boston Consulting.