ZURICH, SWITZERLAND – US pressure on the Swiss banking world appears to have claimed one more victim, with the announcement by St Gallen-based Wegelin, generally considered the country’s oldest bank, to sell most of its wealth management business to Raiffeisen in an effort to protect its employees and clients.

Wegelin one of 11 banks investigated by US, 2 countries finance ministers set deadline

The news comes just a day after Swiss President Eveline Widmer-Schlumpf told reporters in Davos that the US and Switzerland hope to conclude tax treaty talks by the end of 2012. She made her remarks after meeting with US Treasury Secretary Timothy Geithner at the World Economic Forum.

The discussions have been the subject of much media speculation, both for their timeline and a likely financial settlement, with some reports in late 2011 that Switzerland had proposed  amounts, information denied by the Swiss Tax Office to GenevaLunch.  Bloomberg/Business Week quotes the president as saying that “I have expressed that we’ve been in talks for a year, that we’ve invested a lot of time and energy to propose a fair solution,” adding that the two have discussed amounts and that “our aim, and he agreed, is to find a solution where we won’t be confronted with a question about the past every year.”

Reuters noted that the amounts are “possible fines [Switzerland's] banking industry will have to secure a global civil settlement with US authorities” and that Switzerland “is also trying to get the U.S. Department of Justice to drop criminal probes of 11 banks, including Credit Suisse and Julius Baer. “‘I assume we will be able to sort it out for these 11 banks as well as for the banking sector as a whole,’ she said.”

What next for Wegelin clients, staff

A statement issued by Wegelin and Raiffeisen says that “a substantial majority of clients and staff will be transferred to Notenstein Private Bank Ltd, which will become a 100% subsidiary of Raiffeisen for an undisclosed sum. This transaction enables Raiffeisen to substantially strengthen its position in wealth management. Wegelin & Co. Private Bankers will remain in existence to finalize the closure of all remaining US client relationships and to continue the negotiations with the US justice authorities.”

Raiffeisen is a cooperative bank that until recently has been known largely for its mortgages to the middle class. It has grown rapidly in the past four years, partly by taking business from UBS and Credit Suisse, the country’s two big banks.

The two announced the news Friday morning 27 January. Wegelin partner Konrad Hummler in the statement says “I never could have imagined that we, as owners of Switzerland’s oldest bank, would ever have considered selling. The extraordinarily difficult situation and threat to the bank brought about by the legal dispute with the US has forced me and my longtime associate Otto Bruderer to take this extremely painful step together with the other managing partners. With the acquisition through Raiffeisen, we have been able to find a sustainable solution for our clients and staff with a trustworthy and competent partner, despite the enormous pressure. That is a great relief for all the managing partners.”

The sale is one of the most astonishing moves in the Swiss banking industry in recent memory . The St Gallen bank in 2009 made headlines as the first to object to growing US surveillance of American tax and wealth reporting rules outside the US, in an editorial famously called “Farewell America”, where it told its clients that it was pulling out of US business and advising them not to invest in US securities.

Wegelin’s name surfaced in December as one of several Swiss banks under investigation by the US Justice Department on suspicion of helping US clientes evade taxes. It announced 5 January that three of its bankers, all in Switzerland, have been indicted by the US Justice Department. “‘Although US law has some scope for interpretation in this case, Wegelin & Co is certain that Swiss law was not broken at any point,’” the bank was quoted by Reuters as saying in an e-mailed statement.

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