Reports of the death of Swiss private banking are greatly exaggerated: the alpine nation is the beneficiary of a flight to safety from structurally weak nations. A new reputational risk?
«Is the entire amount in Swiss banks illegal money?», Asian outlet «The Independent» asked in all seriousness recently.
The question baffles: aren't foreign journalists aware of the abandonment of Swiss banking secrecy law, and that wealth managers have either shut down or come clean on offshore accounts? That Swiss banks are subject to probing questions via FATCA, the unusually broad U.S. legislation on disclosing foreign assets, or the automatic exchange of information between Switzerland and dozens of nations which makes hiding assets moot?
Minimal Risk, Utmost Discretion
They do now: the author of «Swiss Bank, Sweet Bank» carefully dissects why Swiss banks are still beloved, despite the sweeping changes – and summarizes their lasting appeal: minimal financial risk combined with the greatest possible discretion.
The article's critical tone may have something to do with «The Independent» being a Bangladeshi paper: the Asian nation has fought itself out of bitter poverty, but still suffers from massive tax flight which costs the state billions in lost income every year. India suffers from similar problems.
Offshore Firms Into Swiss Accounts
It's no coincidence that Indian and Bangladeshi media are the most loyal followers of annual Swiss central bank data on foreign funds held in offshore accounts in Switzerland. Their tone is definitive: it is entirely undeclared money that lands with Swiss banks through offshore firms.
A look through media and news outlets in Africa reveals a similar picture: money from corrupt politicians or dictators turns up in Swiss bank accounts. Will Switzerland ever release African funds frozen in their banks?, a correspondent for Pan-African outlet «The African Exponent» asked.
Structural Pattern
The outlet concludes that: «With regard to the embezzlement of funds by corrupt leaders from Africa, it is safe to say Switzerland is a long-time partner who has done more harm than good.»
Latin American media outlets take a similar tone: the money laundering swamp involving Swiss banks in connection with PDVSA in Venezuela or Odebrecht and Petrobras in Brazil is carefully registered in the public conscience.
This arbitrary journey through some of the recent scandals to hit Swiss wealth management share a pattern: Switzerland is a magnet for money looking for safe harbor, either because its banks represent a minimal financial risk, or because they guarantee the maximum in discretion.
These are the factors which, in the Swiss view, count as major pluses in the competition of big international financial centers.
Beneficiaries of Economic Turmoil?
Swiss private banks will benefit from global economic and social developments, Deloitte CEO Reto Savoia and financial services chief Jean-Francois Lagassé told finews.com on Monday: Switzerland represents a bastion of strength because of its stable currency and rule of law.
A less flattering interpretation is that wherever social divides and inequality deepen and politics and economics are unstable and uncertain, the wealthiest segment of the population will stow capital outside the country – and many of them will opt for an offshore bank account in Switzerland.
Haven for the World's One Percent
The result of capital flight is normally more inequality and increased instability. The dialogue over economic and societal developments is today and will increasingly be viewed through the deepening class divide, which affects both industrialized countries as well as less-developed ones.
In other words, the Swiss bank's uniform focus on rich and super-wealthy clientele runs the risk of labeling the alpine nation «a haven for the one percent.»
Better-Than-Expected Reputation
Swiss finance's reputation is generally better abroad than most domestic observers would believe: Presence Switzerland, a promotional organization of Switzerland's foreign office, found that the overwhelming majority of 13,000 people queried gave Swiss banks good to very favorable marks, in a survey conducted in 19 countries last year.
A persistent shift by Swiss banks towards ESG investing is conducive to this view. However, the considerable marketing heft behind positioning Swiss finance in environmental, social, and governance investing also bears risks.
ESG: Credibility Risk
The ESG and sustainability-focused push in client portfolios aren't especially credible when banks accept clients from developing nations who typically have earned their money with less-sustainable endeavors. And the ESG laurels are undermined if Swiss banks take money from clients who are withdrawing funds from the economic cycle of their own country.
Given the lack of growth at home and in wider Europe, Swiss private banks are almost forced to hunt for new clients in surging regions and countries. The risk of their reputation taking a renewed dent increases by doing so.
