THERE USED TO be an old joke that said that if a Swiss banker jumped out of the window, it would be best to follow him because there was bound to be money to be made on the way down. I have just returned from a short visit to Zurich and there doesn’t seem to be too much of that sentiment left.
Aside from the travails of UBS and Credit Suisse, which have been competing with the best when it has come to finding ways to lose money in the global financial crisis, there is a distinct feeling that the goose that laid the golden eggs has left the building.
Long before the US armed forces had discovered the phrase “don’t ask, don’t tell”, Swiss banks and legislators had perfected the art with respect to sources and uses of funds deposited.
HIDDEN UNDER THE guise of strict neutrality, the Swiss had developed a near fail-safe way of taking no moral stance at all, which enabled them to be as moral or as amoral as they cared to be with utter impunity and without a shred of conscience.
Having convinced themselves that occupying no ground was as good as occupying the high ground, they merrily soldiered on in protecting their coveted bank secrecy.
The near unconditionality of bank secrecy gave them the feeling that in treating all-comers the same, they were doing justice to all. Sadly, events in the middle of the last century left a large community of people feeling they had done justice to none.
When the Americans came knocking in pursuit of money belonging to Jews who perished in the Holocaust, the sphinx-like response by Swiss banks and banking authorities found no favour.
The lack of flexibility on the part of the Swiss eventually led to a full-frontal confrontation between the two countries and it proved to be one the Swiss could not win.
If they had conceded part of the field, they might well have saved the rest of it. But what began as a conflict over Jewish money ended with the Americans enforcing the near-total dismantling of that famed Swiss banking secrecy in the aftermath of the Birkenfeld affair (in 2008, Bradley Birkenfeld, a UBS banker, blew the whistle on his US colleagues by revealing how assisting US citizens to avoid taxation had become an entrenched business strategy).
Ultimately, the war waged by Washington on Berne led to the demise of Bank Wegelin, the oldest of all the privately held Swiss institutions – and put the business model of the whole country at risk.
Zurich and Geneva now just look like very expensive places to do business
THIS PAST WEEK, meanwhile, the news crossed the wires that the mighty HSBC, the world’s local bank, is reviewing its presence in the Swiss private banking market. What it is planning is not clear but the inference must be that without the attraction of absolute secrecy, a significant presence in Geneva doesn’t appear worth the bother. Given HSBC’s presence in the Middle East and Asia, a withdrawal from one of the global centres of banking for high net-worth individuals is a clear sign that, in CEO Stuart Gulliver’s opinion at least, it is game over.
Banking in all its forms has been a significant contributor to Swiss wealth going back to the days when bags of cash were dragged home by Swiss mercenary troops who had served anywhere and everywhere (the last residue of which is still to be found in the Vatican).
But with the stripping of the private banks’ crown jewel of absolute secrecy, Zurich and Geneva now just look like very expensive places to do business that can be done in other places just as well.
THE IMPACT HAS been dramatic, not just in terms of jobs and prestige but in the sphere of fiscal revenues. Not so long ago, banking represented well over 10% of GDP, with hundreds of thousands of unnamed foreigners – one-third of global offshore deposits were stashed in Switzerland – quietly contributing to keeping the streets clean and the population educated. The collapse in earnings has hit hard and although Swiss private banking, with or without secrecy, is sans pareille, one must question what the future holds.
Locals are deeply unimpressed by the way the political class crumbled under US pressure and the manner in which banking secrecy was scuppered. And they make no bones about letting everyone else know what they think of it. Meanwhile, as the easy money departs the fiscal income stream, government and people will have to learn to live with less. The City of Zurich, for example, is facing a budget deficit of SFr 231m in 2014 – not bad for a city of 350,000 inhabitants in one of the last Triple A countries.
Hedge fund refugees who descended on Switzerland in droves in 2008 and 2009 are packing up and leaving again as they have found that the country is not quite the paradise of the holiday brochures and the Ludlum novels and that tax-efficiency commands a high personal price for all but the mega-rich.
HSBC has made mistakes in the past – and other banks have left Switzerland before but ended up coming back. But the world of banking has probably changed irrevocably and irretrievably and maybe the attraction of Switzerland and the Swiss banks has begun to fade.