Bob Reynolds is consultant editor of Offshore Red.
If you want to consult the manager of your Swiss bank account in the future where would you go? Zurich, Geneva or Bern? The answer, increasingly, is Singapore, says Bob Reynolds, and the Swiss banking fraternity has been put under considerable pressure to compete
There will always, of course, be bank managers in Switzerland but the banking focus has been moving, increasingly, to the Asia-Pacific region. Banks follow the money and the Swiss banking community – in common with global competitors – is seeking a slice of the action in the East. Last April Credit Suisse's head of private banking moved from Zurich to Singapore. This is a distinctly out of character development for a Swiss bank and shows how far a conservative industry is willing to change to meet the challenges of the immediate future. And the policy is starting to pay dividends.
Credit Suisse's larger competitor, UBS, is the world's largest wealth manager. In announcing record profits in February, its CEO said the bank's investment in Asia-Pacific was a key contributor to its impressive results.
'We now have a strong competitive position across all our business lines – among them Asia-Pacific. This includes European wealth management, alternative investments, investment banking and prime brokerage. These areas are becoming major revenue contributors, allowing us to invest in other opportunities that fit our strategy,' says UBS CEO, Peter Wuffli. The bank claims that half of the billionaires in the Asia-Pacific region are its clients. UBS made a record net profit of SFr9.844 billion ($7.47 billion) from its operations, but it was not alone in posting good figures in February. Credit Suisse reported net income of SFr5.85 billion. After a group-wide rebrand on 1 January, it recorded major income growth from private banking activities. The private banking unit of Credit Suisse posted a record net income of SFr2.467 billion, a 7% increase over 2004.
This was mainly attributable to strong revenues related to the increase in assets under management, higher trading revenues and a rise in brokerage volumes, Credit Suisse said.
The latest figures emphasise the growing dominance of UBS and Credit Suisse in the Swiss banking sector. This is one of the principal trends. It is mirrored by a reduction in smaller private banks. The boutique operators are fighting hard to retain a share of their traditional markets but slowly they are being absorbed or merged. It is difficult to compete with the resources of the big two and the growing interest of international banks such as JP Morgan Chase, Barclays and Deutsche Bank in their traditional markets.
Nonetheless, the relentless march of Swiss banking continued unchecked in 2005. UBS's private bank reported that it had drawn in SFr95 billion in new money alone last year – roughly half the size of the entire private bank of Barclays Bank, UK's biggest wealth manager. Part of the reason for the rampant growth of UBS and Credit Suisse is the strength of their wealth management networks across Europe. Their strength allows them to offer cheaper services which are boosting inflows from high net worth individuals and families and enabling them to win market share from smaller rivals operating just in local markets.
The Swiss banks are competing directly with US and other international banking powers in the Far East. The rapid growth in Chinese and other East Asian high net wealth individuals and families is the main target for wealth managers worldwide.
The focus for much of this attention is Singapore. It has strengthened account-secrecy protections, changed trust laws, and started to allow foreigners who meet minimum wealth requirements to buy land and become residents. Money is arriving in Singapore from three main sources. These are: Asians who have grown rich from the booming Asian-Pacific economy; foreigners seeking to invest and do business in Asia; and Europeans moving money from Switzerland for tax purposes.
In Singapore's asset management business, which includes private banking, total funds under management rose to around $350 billion at the end of 2004, from about $92 billion at the end of 1998, according to the Monetary Authority of Singapore. Around $122 billion of this is in private banking, say local analysts.
Singaporean officials involved in the private banking push say the new foreign depositors are attracted by Singapore's sound legal system, lack of corruption, and transparent financial systems. Some Swiss private bankers have also been billing Singapore as a way around new taxes in Switzerland, Luxembourg and tax havens such as Jersey. Under pressure from the EU to crack down on tax evasion, Switzerland imposed a withholding tax last July on EU resident account holders.
Credit Suisse now has at least $4.75 billion of European private banking assets booked in Singapore and UBS has at least $3.16 billion, according to local market sources. Clariden Bank, a private bank controlled by Credit Suisse, opened a Singapore office at the end of last year. "Singapore will be the fastest growing offshore private banking centre in the next five years," says Roland Knecht, a member of Clariden's executive board of management. He estimates that within three years, about 20% of private-banking assets booked at the bank in Singapore will come from Europe.
For the small private banks back in Switzerland there remains the hope of long-term survival. Julius Baer Holdings chairman Raymond Baer said his aim is to ensure that the Swiss bank "can remain independent for a very, very long time". Speaking in an interview with a Swiss newspaper, Baer also denied that the bank was losing a large number of clients as a result of its acquisition last year of three private banks and a specialist asset manager from UBS.
"We believe that the loss of clients will stay well under 3%," he said. This new SFr5.6 billion deal gave Baer SFr300 billion more assets under management and over 3,000 new employees, but also catapulted it into the big league of Swiss banks, raising concerns that some of Baer's more traditional clients would move their money elsewhere.