Behind the scenes in Monaco is an economic reality that puts other private banking centers to shame, former UBS banker and head of Compagnie Monegasque de Banque Werner Peyer writes in an essay for finews.first.
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Formula 1, casinos, super yachts, prince and princesses? If these are images the dear reader holds about the Principality of Monaco, he is right, they form part of the image of the second-smallest country on earth. Still, on the two square kilometers, populated by about 38,000 people from more than 120 countries, there’s an economic reality which has many curious observer go green with envy and which explains why Monaco has kept its allure for wealthy families who want to settle.
François Grimaldi in 1297 seized control of the castle towering over Monaco and the same family has remained in charge of the principality ever since. The current ruler is Prince Albert II., married to Princess Charlene, with the succession already secured following the birth of twins on December 10, 2014 – Prince Jacques and Princess Gabriella.
«52,000 jobs for a population of 38,000»
The gross domestic product is about 5 billion euros, with 16 percent generated by the financial market, the single biggest contributor to the economy. Technological and scientific service providers, construction, trade, the real estate business, health care, the retail business, and hotels with a paltry 6 percent, follow the finance sector in this order. Which also helps unmask the myth about casinos: they contribute less than 1 percent of gross domestic product.
A further fascinating figure is the number of jobs – 52,000, which compares with the 38,000 inhabitants! The key to answer the mystery: the majority of employees commute to the principality from France and Italy on a daily basis.
About 48,000 work in the private sector and 4,000 in the public administration of the principality. A large number of the administrative workforce are citizens of Monaco – they have a right to work and enjoy beneficial treatment in the selection process. The palace alone has a staff of 190.
«Private banking employs 3,800 people»
It comes as no surprise that the financial sector plays such an important role given the extreme density of millionaires. The 31 banks and 53 wealth managers have a combined workforce of 3,800 people. Add to that a steady increase of family offices – currently about 40 – which profit from a recently adopted law that provides a supportive environment to the business.
Complementing these institutions are some 40 trust companies and also a multitude of lawyers and tax advisers. All financial service providers have to be members of AMAF, or Association Monégasque des Activités Financières, and the financial market as a whole is tightly controlled by authorities and regulators.
All banks are subject to the supervision of the French central bank and its ACPR department, or Autorité de contrôle prudentiel et de resolution, according to a Franco-Monegasque agreement. The local commission of ACPR is supervising investment and financial product operations, and in addition to that there’s the strict control of SICCFIN, the money-laundering authority.
«In 2016, the automatic exchange of information»
Shortly after his enthronement, Prince Albert II. made it his mission to maintain a transparent, tightly controlled financial market in a bid to closely cooperate with the international community. According to this pledge, laws were passed in 2016 to conform with the automatic exchange of information and the Common Reporting Standards laid out by the Organization for Economic Cooperation and Development.
The banking world is diverse. Swiss banking is represented by UBS, Julius Baer, J. Safra Sarasin, EFG International, Edmond de Rothschild and Union Bancaire Privée, or UBP, French banking mainly by Crédit Agricole under the name of CFM Indosuez Wealth Management, Société Générale and BNP, the U.K. by Barclays.
One bank, one of the biggest, stands out in particular as it is generally known as the only local bank: Compagnie Monégasque de Banque (CMB). It has 220 members of staff, present only in Monaco, with a balance sheet of strength and it is one of a few banks that manages part of the country’s assets.
«There was hardly any investment in equities»
Assets under management and loans increase steadily every year. Customers appreciate the political and economic stability of the principality. The country has no debt and is carefully managing its budget. Large projects, an extension of the territory into the sea and a large, modern hospital are under construction in a bid to offer the stream of newcomers an adequate infrastructure.
Thorsten Hens, the leading Zurich-based behavioral-finance-specialist, would probably confirm through research what quickly becomes apparent to the financial specialist from the outside. The Mediterranean investment culture is characterized through its low risk tolerance and little patience.
Investors around the Mediterranean for decades have enjoyed high rates on fixed-term deposits in local currencies and, later on, high bond yields. Therefore, there was hardly any investment in equities and the big swings in equity markets over the past 30 years were taken as proof not to heavily invest in this asset class.
«40,000 euros per square meter for flats»
Hence, for a long time, there was no asset specialization such as we have known in the Swiss financial market. With intensive measures, also from the government, the training in finance of banking staff recently has been strongly improved and CMB even organizes training academies for its wealthy clientele – for instance the academy «Femmes et Finance».
A lot of wealthy citizens, primarily from Western and Eastern Europe, each year decide to settle in Monaco. They however have to carefully calculate, with low interest rates and very high residence costs of Monaco. Housing costs are anything between 10,000 and 35,000 euros a month and the average price of an apartment is 40,000 euros per square meter, for new developments even 85,000 euros per square meter. In other words: costs and benefits have to add up.
It is an important criterion that natural persons are exempt from paying income, capital gains, property and inheritance taxes. Add to that the very high level of security, a first-class infrastructure and pleasant climate. Top class quality of life guaranteed!
Werner Peyer has been Chief Executive of CMS, a Mediobanca subsidiary which stands for Compagnie Monegasque de Banque, which manages a substantial portion of the country of Monaco’s wealth. The 62-year-old has extensive experience in finance, including at Credit Suisse and Coutts, where he built up the British wealth manager’s business in Monaco. Most recently, he held a senior role in UBS’ private and business banking unit, and head of private banking for the Zurich area. Peyer was also head of UBS’ cultural foundation indicted as Switzerland’s «Mr. Euro» in helping to organize 2008’s European championships.
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