Philipp Hildebrand resigning 9 January 2012 as chairman of the board of the Swiss National Bank
BERN, SWITZERLAND – Kashya Hildrebrand broke no rules and Christoph Blocher should not have parliamentary immunity: two decisions came from separate corners Wednesday 25 April that could shift the impact of the scandal that led to the resignation of Switzerland’s central bank chief Philipp Hildebrand in early January.
The Swiss National Bank announced Wednesday evening that an audit by KPMG of accounts of Kashya Hildebrand, wife of then-SNB chairman Philipp Hildebrand, “did not identify any activities which might suggest that transactions were carried out via Kashya Hildebrand’s business and private accounts which were in breach of the rules or guidelines in force during the period covered by the investigation.”
The audit was ordered 13 March, six days after the central bank’s governors said that an initial audit had turned up no wrongdoing, but “the business and private accounts of Kashya Hildebrand, wife of the former chairman of the Governing Board, were not included. The second audit covered this.
No immunity before being member of parliament
Right-wing politician Christoph Blocher, who is a former member of the Federal Council and strategist for the nationalist UDC People’s Party, and currently a member of parliament, has claimed parliamentary immunity for his role in the Hildebrand scandal.
The immunity commission of the lower house of parliament today voted 6 to 2 with 1 abstention against giving him immunity for events that occurred 3 December. This is the date when an IT specialist at Hildebrand’s bank, through a lawyer who is a politician, showed Blocher details of Hildebrand’s personal bank account, which is protected under Swiss privacy laws. Blocher had been elected to parliament but was not yet a member. The commission refused, however, voting 5-4, to lift immunity for Blocher’s actions 27 December. He is under investigation by Zurich’s attorney general for breaking bank secrecy laws on both dates.
Blocher and Hildebrand had been at odds for months over the SNB’s policies. Hildebrand resigned 9 January as the scandal unfolded, saying that while he and his wife had done no wrong, he did not want to see the Swiss central bank dragged down by the affair.
Switzerland to share seat with Poland, pledges additional $10 billion to IMF
BERN, SWITZERLAND – Swiss President Eveline Widmer-Schlumpf and US Attorney General Eric Holder met on the fringes of a key International Monetary Fund (IMF) meeting in Washington 20-21 April. Bern’s statement was brief, noting that the two met “in order to discuss bilateral cooperation on tax issues. They agreed to pursue all available options to identify US taxpayers with undeclared accounts in Switzerland.” The US Department of Justice, which Holder heads, did not comment on the meeting.
The IMF received pledges of $430 billion in additional funds for what it calls a “reinforced anti-crisis firewall” from its member states, in an IMFC (Financial Committee) meeting of central bank governors and ministers 20-22 April. Switzerland pledged $10, noting that the “exceptional” boost is “due to the still fragile state of the world economy, [thus] the IMF ministerial committee decided to increase the IMF resources” and insisting that “the additional funds should be made available to the IMF only on a temporary basis.”
Poland and Switzerland to share part of Bretton Woods leadership
Poland and Switzerland, in a new Memorandum of Understanding signed during the Washington meetings, have agreed to Switzerland maintaining “overall leadership of the constituency in both the IMF and World Bank.” The constituency to which they refer is a group of eight IMF member countries that Switzerland has represented since 1992 on the 24-seat councils of the IMF and the World Bank, sister organizations in what are known as the Bretton Woods Institutions. “It will represent the constituency in the responsible ministerial bodies, for example, the IMFC and Development Committee, in which the political and strategic courses are set. However, Switzerland will share its seat on the IMF Executive Board–the IMF’s operating decision-making body–and in future both countries will nominate the executive director for a two-year period on an equal rotation basis.”
The clause concerning the executive director is dependent on the IMF implementing its governance reforms but Bern notes that no leadership changes will be made for the World Bank, where governance reform is not underway.
BERN, SWITZERLAND – Switzerland and its neighbour Austria Friday 13 April signed an agreement calling for Swiss banks to withhold tax on income from offshore accounts held by Austrian citizens. The account holders will then have to decide to either forfeit the tax or declare the accounts. The agreement is similar to those signed by Germany and the UK and, like those, opens up the Austrian financial services market to Swiss companies.
A flat-rate one-off payment “for regularizing the past” is 15-38 percent depending on the size of the assets and how long the client has had the banking relationship. A single rate of 25 percent will apply for future investment income taxation, which Bern explains corresponds to Austria’s capital gains tax. Austria has no inheritance tax, so this is not an issue.
Bern’s statement Friday afternoon states bluntly that Switzerland “does not want any further untaxed assets in the future”. It noted that “both sides acknowledge that the agreed system will have a long-term impact that is equivalent to the automatic exchange of information in the area of capital income.”
It outlined how the deal will work:
“Under this agreement, persons resident in Austria can retrospectively tax their existing banking relationships in Switzerland either by making a one-off tax payment or by disclosing their accounts. Future investment income of Austrian bank clients in Switzerland will be subject to a withholding tax, and the proceeds of this will be transferred anonymously to the Austrian authorities by Switzerland. In addition, mutual market access for financial services will be improved. The agreement requires the approval of parliament in both countries, and should enter into force at the start of 2013.”
GENEVA, SWITZERLAND – Geneva’s financial sector remains a significant part of the canton’s economy, responsible for 20 percent of the gross domestic product (GDP), but in 2007 that figure was 25 percent, and 2011 shows new slippage. Ocstat, the canton’s statistical office, Monday 19 March said that while financial business rose by 0.9 percent in the first quarter of 2011, it then fell each quarter, down by 1.6 percent, 0.4 percent and 0.7 percent.
Overall, the Geneva economy showed growth in 2011, albeit slow and mainly thanks to be good first quarter, with the fourth quarter up 0.3 percent compared to previous quarters’ increases of 0.4 and 0.2 percent.
Ocstat published provisional figures 16 March. The final figures will be released in September 2012.
BERN, SWITZERLAND – The Swiss government announced the first phase of a strategy “for a credible, tax-compliant and competitive Swiss financial centre” Wednesday 22 February. The statement for the first time puts the emphasis on future offshore clients stating they are tax-compliant at home before an account will be opened.
The Federal Council says it has asked the Federal Finance Department to draw up the details of the strategy and it expects to announce a series of concrete steps by September 2012. Today’s statement provides an outline of what is to come.
The first step must be to settle past tax problems, says Bern, “in particular cases of clients living abroad whose assets have not been correctly taxed.” Existing clients’ assets will have to be “regularized” from a “tax viewpoint, thereby lowering the legal risks for banks”.
This will be followed by a three-prong programme that focuses on international cooperation and future taxation of investment income and capital gains for offshore accounts:
- International withholding tax agreements, beyond those negotiated with Germany and the UK: Bern calls this “an effective means of taxing taxpayers in accordance with the regulations of their country of domicile while safeguarding their privacy”. It notes that some issues “have not yet been fully resolved, [but] there is international interest in this approach”.
- Improved administrative and mutual assistance based on international standards as laid out in double taxation agreements (DTAs). Serious tax crimes and money laundering investigations will be more closely linked, but the key part of this will be the new Tax Administrative Assistance Act, out for public consultation until April. It replaces an ordinance that has been in place since October 2010, implemented quickly so that Switzerland could comply with an OECD deadline to observe its standards. The new law, Bern announced earlier, “assumes the basic features of the provisions of the ordinance. It contains the principle that administrative assistance will be provided exclusively upon request in individual cases. Switzerland will not provide any administrative assistance in the case of requests based on stolen data. Unlike the ordinance, which covers only administrative assistance in accordance with double taxation agreements, the Act also governs administrative assistance based on other agreements which make provision for the exchange of information relating to tax matters, for example the agreement on the taxation of savings income with the EU. The appeal procedure is to be streamlined and the deadlines shortened.”
- Tougher due diligence requirements for banks to more effectively prevent them from accepting untaxed assets; foreign clients will be required “to make a declaration on the fulfillment of their tax obligations”.
Switzerland manages the largest amount of private offshore funds in the world, 27 percent. The Swiss argue their share is more the result of financial management skills than banking secrecy and the new government strategy is banking on this. The Swiss have nevertheless found it hard to shake off the old cliche that the country is a tax haven (according to OECD definitions it is not, although Tax Justice Network views it differently), in a world where wealth management is rapidly changing.
Boston Consulting publishes an annual report on worldwide private assets under management and in May 2012 it noted that in the previous year these assets had grown by 8 percent to a record $121.8 trillion. It issued a press release noting that:
“‘Offshore private banking remains a tumultuous part of the business,’ said Anna Zakrzewski, a BCG principal and a coauthor of the report. ‘The relative importance of offshore centers is changing rapidly. Some are benefiting from continued asset growth, while others are suffering large asset outflows, with wealth being repatriated to onshore banks, transferred to other offshore centers, redirected into nonfinancial investments, or simply spent at a faster rate.’
“For most clients, however, the core value proposition of offshore banking remains, Zakrzewski said. ‘Offshore wealth managers offer a sense of stability and security that these clients cannot find in their home countries. Other clients value the expertise or access to certain investments provided by offshore private banks. To continue to grow, offshore wealth managers will need to adapt to the changes imposed by the push for greater transparency while accentuating their strengths in areas that remain extremely relevant to clients around the world.’”
Switzerland’s announcement comes at a time when media have been speculating whether the country and the US are reaching an agreement over a fine a group of 11 Swiss banks would pay, linked to US accusations they helped American citizens and residents hide money offshore in an effort to evade taxes. (Ed. note: The announcement was covered by Business Week/Bloomberg, Reuters, Wall St Journal)
The strategy outline was welcomed Wednesday by the Swiss Bankers Association, which notes that “the SBA has been working on risk-based codes of conduct that impose on banks due diligence measures, in a similar way to the well-established Swiss approach to combating money laundering.” The group cautions, however, some aspects could backfire. “The codes of conduct will stipulate a risk-based approach whereby it makes sense for banks to obtain a declaration from clients about their tax situation (“self declaration”) if they have indications that the clients have not complied with their tax obligations. However, the SBA rejects a systematic duty of self-declaration as it has no credibility abroad, is unlikely to become an international standard, does not provide a solution for assets already deposed in Switzerland and casts suspicion over all clients.”
The group also argues that “it is important that in Switzerland not only banks but also all financial intermediaries be required to implement these new provisions. In addition, Switzerland must make every effort to ensure that other financial centres also resolutely commit themselves to tax compliance and take appropriate measures involving locally based financial intermediaries.”
BERN, SWITZERLAND – Switzerland will implement its tough new bank capitalization rules in two weeks, starting 1 March, the Federal Council said Wednesday. The measures calling for more risk capital were approved nearly a year ago by the council, then debated in parliament, which approved the amendment to the Banking Law in September.
The new law gives the country’s two largest banks, Credit Suisse and UBS, considered Switzerland’s “too big to fail” or systemically important banks, six years to gradually meet the new requirements.
They
must now increase their capital bases substantially above the amount required by Basel III global requirements, but a statement issued by the Federal Council notes that “systemically important banks will have to meet more stringent capital, liquidity and organizational requirements in the future.” The organizational requirement demands that these banks must organize themselves in such a way that “they do not jeopardize the functioning of the national economy in the event of looming insolvency.”
Changes to the federal stamp duties law
The council also adopted ordinance amendments that implement tax measures, with changes to the Federal Act on Stamp Duties, specifically, the Ordinance on Stamp Duties and the Ordinance on Withholding Tax. “Their purpose is to develop a Swiss capital market that works well and promote contingent convertible bonds (CoCos) in Switzerland. These bonds play a key role in the emergency plans of systemically important banks. It was resolved to abolish the issue tax on debt capital and to exempt the conversion of CoCos into equity from the issue tax.”
Beyond Basel III
Basel III rules were established by the Basel Committee on Banking Supervision and have been the subject of heated international debate in recent months.
The Swiss National Bank threw its support behind the tough new Swiss law, which was written after the government’s 2008 bailout of UBS during the global financial crisis.
Philipp Hildebrand, who in early January 2012 resigned as head of the central bank, was both praised and attacked for his strong stand on the Swiss law.
Banks have argued that it will make them less competitive in the international market, while the Swiss Bankers Association said in March, during consultations, that it goes in the right direction, but goes too far.
Switzerland has been leading the way in bank reforms, calling for larger capital bases, in part because the banking sector is a far larger part of the economy than in many countries. The new law requires the too big to fail banks to hold 10 percent capital, or 3 percent more than the Basel rules.
ZURICH, SWITZERLAND – UBS, Switzerland’s largest bank, posted a full-year net profit of CHF4.23 billion, compared to CHF7.5b in 2010. The bank’s revenues were up in some areas and new money under management grew strongly, up CHF42.4 billion for the year, showing a turnaround in consumer confidence.
But profits were hurt by fourth quarter losses in investment banking due to stagnant market conditions, with a significant slowdown in trading stocks and bonds. The bank warned investors that the first quarter of 2012 could prove difficult:
“As in the fourth quarter of 2011, ongoing concerns surrounding eurozone sovereign debt, the European banking system and US federal budget deficit issues, as well as continued uncertainty about the global economic outlook in general, appear likely to have a negative influence on client activity levels in the first quarter of 2012. Such circumstances would make sustained and material improvements in prevailing market conditions unlikely and would have the potential to generate headwinds for revenue growth, net interest margins and net new money. In light of the above, traditional improvements in first quarter activity levels and trading volumes may fail to materialize fully, which would weigh on overall results for the coming quarter, most notably in the Investment Bank.”
Analysts, according to financial media, were looking for Q4 net profits of CHF658 million but UBS reported CHF393m, down from third quarter profits despite the write-off in Q3 of 1.8 billion lost by a rogue trader.
Analysts were also looking at the bank’s capital-building and to see how well UBS is offsetting reduced revenue streams with continued cost-cutting. They were not disappointed here: UBS is currently one of the world’s best capitalized banks, noting in its statement to media Tuesday that it had reduced “Basel III risk-weighted assets by an estimated CHF20 billion and [was] building capital ratios”.
In 2011 it cut the bonus pool by 40 percent as part of cost reductions of CHF2.1 billion. Total costs last year were CHF22.4b. The company trimmed jobs but overall staffing remained at nearly 65,000 employees worldwide.
The year-end results were published with fourth quarter results before markets opened Tuesday 7 February.
BERN, SWITZERLAND – Comco, Switzerland’s competition commission, has opened an investigation into more than 10 international banks and companies and the country’s two largest, UBS and Credit Suisse, for possible “collusion between derivative traders [that] might have influenced the reference rates Libor and Tibor. Furthermore, market conditions regarding derivative products based on these reference rates might have been manipulated, too.”
The investigation follows what Comco calls an application to its leniancy programme, or self-denunciation, without providing details of who provided the information. The investigation could take several months. The banks targeted by the investigation include: Bank of Tokyo-Mitsubishi UFJ, Citigroup Inc., Deutsche Bank Aktiengesellschaft, HSBC Holdings plc, JP Morgan Chase & Co., Mizuho Financial Group Inc., Rabobank Groep N.V., Royal Bank of Scotland Group plc, Société Générale SA and Sumitomo Mitsui Banking Corporation.
Libor, the London interbank lending rate and Tibor, in Japan, are rates set daily based on bank data, which serve as underlying lending rates. The Swiss National Bank defines Libor as:
“The Libor (London Interbank Offered Rate) refers to the interest rate for unsecured money market loans to prime banks. Each bank business day, specific banks report to the British Bankers’ Association (BBA) the interest rate at which they would be able borrow unsecured funds of a reasonable market size on the London interbank market shortly prior to 11 a.m. The relevant top and bottom-quartile interest rates are disregarded when fixing the Libor. An average is calculated on the basis of the remaining interest rates, and the figure obtained in this manner is fixed and published as the Libor for the day in question. Libor rates are fixed in different currencies and with varying maturities.”
The investigation comes three weeks after European Union anti-trust boss Joaquin Almina said the EU is stepping up its efforts to ensure that derivatives markets remain free and competitive. Antoine Colombani, spokesperson for the European Commission is cited by Bloomberg as stating in January that “Last October we carried out unannounced inspections at the premises of a number of undertakings active in the sector of euro interest rate derivatives based on Euribor benchmark rates,” but that it had not opened a formal investigation.
“Regulators in the US, UK and European Union have been examining how Libor is set, while Japan’s securities watchdog has probed Tibor,” according to Bloomberg.
Comco’s statement notes:
“The London Interbank Offered Rate (Libor) and the Tokyo Interbank Offered Rate (Tibor) are reference rates which are aimed at reflecting the interest rate level in the interbank deposit market. The British Bankers’ Association (for Libor) and the Japanese Bankers’ Association (for Tibor) calculate these reference rates on a daily basis, for a range of currencies, based on submissions by respective panel banks. Derivative traders working for a number of financial institutions might have manipulated these submissions by coordinating their behaviour, thereby influencing these reference rates in their favour. Moreover, derivative traders might have colluded to manipulate the difference between the ask price and the bid price (spread) of derivatives based on these reference rates to the detriment of their clients.”
Comco says that assessing ‘the effects of the alleged practises on Swiss clients and companies is one of the aims of the investigation”.
ZURICH, SWITZERLAND – Wegelin Bank in St Gallen, possibly Switzerland’s oldest bank, made headlines back in August 2009 when it published a newsletter with the heading “Farewell America”, saying it was pulling out of the US and advising its clients to get out of US securities. This week the bank says it is prepared for a fight with the US: it confirmed to Reuters Wednesday that three of its employees, all working in Switzerland, have been charged by US authorities with helping US citizens avoid taxes by hiding their money in Switzerland.
“‘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 is quoted by Reuters as saying in an e-mailed statement. “‘The accused employees worked for the bank within the borders of Switzerland.’”
The bank did not mince words in its criticism in 2009, on moral grounds, of the direction in which the US government is moving, noting in its August 24 Investors Newsletter lead article called “Farewell America” that “the next round of fiscal enforcement staged by the Americans will be devoted not to the American super-rich, but to non-Americans who never in their lives had any intention of evading taxes.”
The three bankers were charged in Manhattan with trying to “capture” business from UBS in 2008 and 2009 when it was famously investigated by the IRS. Switzerland’s largest bank later paid a fine of $780 million to the US.
Stock markets down on gloomy news
ZURICH, SWITZERLAND – Standard & Poor’s applied new credit rating standards to 37 of the world’s largest banks 30 November, which resulted in the downgrading of a number of major banks, for different areas of their businesses. Seven of eight US banks on the list were downgraded. China Construction Bank received an upgrade, the only bank to do so. And 20 banks remained “stable”.
The agency published new criteria for bank ratings 9 November, so the downgrades were not completely unexpected, but shares fell across Europe on the news, reports Business Week. S&P’s did not immediately provide details oabout individual downgrades, but will do so Wednesday. Switzerland’s largest bank, UBS, was given a rate of A, down from A+.
Other banks downgraded include US-based Bank of America Corp. and several subsidiaries, Citigroup, Goldman Sachs Group, JP Morgan Chase & Co, Morgan Stanley and Wells Fargo & Co.
In the UK, Barclays, Lloyds, Bank of Scotland and HSBC were downgraded.
The changes could increase the borrowing costs of the banks.
AP suggests that Bank of America could be hurt most by the cut, while the Financial Times
UK residents with Swiss accounts affected in 2013
BERN, SWITZERLAND – The Swiss and UK governments Thursday 6 October signed an agreement reached earlier, that will allow the British government to tax income on assets held in Swiss banks by UK residents.
The Swiss government announced that “Federal Councillor Eveline Widmer-Schlumpf and the UK Exchequer Secretary to the Treasury David Gauke signed a tax agreement. Under this agreement, persons resident in the United Kingdom can retrospectively tax their existing banking relationships in Switzerland either by making a one-off tax payment or by disclosing their accounts. Future investment income and capital gains of British bank clients in Switzerland will be subject to a final withholding tax, and the proceeds of this will be transferred to the British authorities by Switzerland.”
In addition, says Bern, the new agreement will give Swiss banks better access to the UK financial market.
The agreement is similar to one signed in September with the German government and to one being negotiated with France.
UBS CEO's Oswald J Grübel resigns - Photo UBS
ZURICH, SWITZERLAND – Oswald Gruebel, 67, has resigned as CEO of UBS AG, Switzerland’s largest bank, after a $2.3 billion dollar loss from unauthorized trading.
On a statement released on Saturday 24 September, UBS stated that the board had named Sergio Ermotti, the bank’s European head, as interim CEO.
UBS said in July that former Deutsche Bundesbank President, Axel Weber would become chairman in 2013, but there’s no word yet if he will take on the job earlier than planned.
According to an article by Swiss financial-magazine Bilan, Oswald Gruebel was under heavy pressure from the board to leave, as they met on 22 September.
However, UBS’s Chairman Kaspar Villiger who announced Grübel’s resignation said:
“The Board regrets Oswald Grübel’s decision. Oswald Grübel feels that it is his duty to assume responsibility for the recent unauthorized trading incident. It is testimony to his uncompromising principles and integrity. During his tenure, he achieved an impressive turnaround and strengthened UBS fundamentally. He steps down having helped make UBS one of the world’s best capitalized banks. On behalf of the Board of Directors, I extend my heartfelt gratitude to him for everything he has done for UBS.”
Grübel who took his post in February 2009, will receive no severance and have no further role at the bank.
Odier praises recent agreements with UK, Germany and says US must respect existing Swiss law
Patrick Odier, left and Brady Dougan, head of Credit Suisse, in 2009
ZURICH, SWITZERLAND – Patrick Odier, president of the Swiss Bankers Association (SBA), says that a new Swiss treaty with the US, similar to the one negotiated for the transfer of banking data from UBS to the US but covering additional banks, would not be likely to be approved by parliament.
“The cross-border problems with the United States can and will be solved. But the United States must understand that Swiss laws must be respected,” Odier said at a news conference.
Odier’s remarks were made at a news conference in Zurich Monday morning 5 September in a run-up to the annual Swiss Bankers Day Tuesday 6 September.
He also emphasized that the new tax agreements negotiated with Germany and the UK point the way forward in resolving Switzerland’s tax and banking disputes with other countries, but also what the banking industry sees as its bigger challenge: they represent a milestone in implementing the 2015 Financial Centre Strategy set out by the association, one of the goals of which is acquiring and managing taxed assets.
“Bank client secrecy protects wealth and does not hide it. This protection remains important,” Odier insisted to journalists.
Swiss banks in 2010 had earnings of CHF61.5 billion, which the SBA attributes to a growing economy and low interest rates. Earnings were up by 13.4 per cent. Total assets rose by 1.7 per cent to a total of CHF2,714.5 billion. The total volume for mortgages and bank loans last year was CHF 898 billion. The majority of lending continued to go to private households, SBA figures show.
The organization is at odds with the federal government over keeping mortgage lending risks under control.
“The current upward price trend on the real estate market, with scattered hot spots, is due to low interest rates and rising demand. The banks are working with FINMA to find a solution that would strengthen certain aspects of the existing self-regulation for lending. The SBA was therefore surprised by the announcement made by the Swiss Federal Council to strengthen the capital adequacy requirements for the mortgage business. The SBA remains sceptical about the effectiveness of any quantitative regulations. In particular, even in the area of exceptions-to-policy, the SBA would expect to see risk-based capital adequacy requirements.”
The SBA says it is supports Swiss government efforts to seek “a sustainable solution to the open issues regarding the cross-border business with the United States. A solution must be applicable worldwide, definitive and correspond to existing Swiss law”, the group says in a statement issued Monday morning.
Reuters reports that “a long tradition of bank secrecy has helped Switzerland build up a $2 trillion offshore financial industry, but the country has agreed in recent years to do more to help hunt tax cheats amid a global crackdown on tax havens. The government is keen to find a solution that would avoid needing the approval of parliament which only reluctantly agreed to the UBS treaty under emergency law last year.”
GENEVA, SWITZERLAND – Europe’s largest retail bank, HSBC in the UK, announced job cuts 1 August that will reached 30,000 by the end of 2013, joining Switzerland’s UBS and Credit Suisse, as well as other large banks that have announced major staffing cuts in the past two weeks as financial markets fail to bounce back as expected from the 2008-09 global economic crisis. Credit Suisse expects to cut 2,000 jobs and UBS has not yet confirmed the number it will eliminate.
The HSBC job cuts were announced along with financial results that show a 36 percent increase in profits to $9.22 billion from $6.76 billion a year earlier. The bank is preparing to meet higher capital requirements under new Basel III world bank regulations.
Business Week reports that HSBC’s proportion of profits from Asian business rose to 76 percent, up nearly 10 percent compared to a year ago, while the share of its expenses based in Asia were just over 46 percent. Job cuts will occur in its offices worldwide, but the bank is likely to be hiring in Asia.
BERN, SWITZERLAND – The finance commission of the Swiss parliament’s lower house has given its approval to new rules that would require Switzerland’s two largest banks, UBS and Credit Suisse, to increase their capital bases substantially above the amount required by Basel III global requirements.
Basel III rules were established by the Basel Committee on Banking Supervision and have been the subject of heated international debate in recent months.
The change in Swiss banking law, proposed to parliament by the governing Federal Council (cabinet), went through an upper house commission Monday.
It will now be debated in both houses this summer and, if approved, could be implemented starting in 2012, with a six-year period to gradually implement it.
The Swiss National Bank has thrown its support behind the tough new Swiss law, which was written after the government’s 2008 bailout of UBS during the global financial crisis.
Bern, Switzerland (GenevaLunch) - PostFinance, the financial arm of Swiss Post, has attracted 18,000 new clients in the first three months of 2011 and its earnings are up 39 percent over Q1 in 2010, to CHF 181 million, Swiss Post announced 9 May.
Customer deposits rose by CHF5.2 billion to CHF89.4 billion. “This increase lead to improved net interest income, up by 22 percent on the same period last year, despite a consistently narrow interest margin. This is the main reason for earnings of CHF 181 million,” the Swiss post office says in a statement.
The number of new accounts increased significantly, by 48,000, nearly double the number of new accounts the previous year, in the same period.
Zurich, Switzerland (GenevaLunch) – ABB‘s financial report for the first quarter of 2011, published Wednesday, is upbeat, with a 25 percent increase in orders for the industrial engineering multinational, while net income rose 41 percent to CHF655 million.
ABB robotics packing furniture panels (photo: ABB)
Earnings before interest and taxes (EBIT) increased 43 percent to approximately $1 billion. Company head Joe Hogan attributes the solid performance to lower costs and successful targeting of growth areas.
Credit Suisse published its results, the day after UBS, showing net income of CHF1.1 billion, in line with analysts expectations, with net new assets of CHF19.1b. Income was down 45 percent compared to a year earlier, but up 35 percent compared to the fourth quarter of 2010.
The weaker performance compared to a year earlier was due, according to chief executive officer Brady Dougan, to “own debt and stand-alone derivatives relating to own funding liabilities” as well as to the franc’s continued strength against the dollar.”
Both net income and new inflows of money were lower for Switzerland’s second largest bank than for UBS.
Zurich, Switzerland (GenevaLunch) - International financial media are greeting first quarter figures from UBS with gloomy headlines, despite higher profits posted by the bank in its first quarter results Tuesday morning. UBS published figures showing pre-tax Q1 profits of CHF1.8 million, up over the previous quarter (CHF1.7b), but 18 percent lower than the CHF2.2b Q1 profits in 2010.
Bloomberg, oddly, initially carried a headline of “UBS posts decline in quarterly net on lower securities earnings” but changed the heading to the more upbeat “UBS attracts highest inflows since 2007 as profit tops estimates”.
The bank’s note that net new money is up, “with positive net flows recorded across all of our asset-gathering businesses confirming the return of client trust and confidence”. New money rose from CHF7.1 billion in Q4 2010 to CHF22.3b. The issue of new money has been watched closely by analysts in recent months. Reuters recalls that “clients pulled nearly 400 billion francs from the world’s second-largest wealth manager in recent years after UBS was bailed out following huge writedowns on toxic assets and was hit by US charges that it helped wealthy Americans dodge tax.”
Zurich, Switzerland (GenevaLunch) – Bank Julius Baer has agreed to pay the German government CHF50 million in a one-time payment, to close an investigation the bank describes as potentially lengthy and cumbersome for both sides.
The payment “will end the investigations against Julius Baer and unknown employees regarding undeclared assets of persons who are subject to taxation in Germany. The investigations were prompted by voluntary self-disclosures of German clients and – as the media reported already last year – by data acquired and collected by authorities,” the bank said in a statement issued Thursday 14 April.
The bank says it sees the action as leaving it “free from allegation” and there free to “now continue to fully concentrate on building and further expanding its business with German clients.”
Switzerland: IMF checks economic winds in 2011
Bern, Switzerland (GenevaLunch) - The IMF (International Monetary Fund) in its annual country report on Switzerland says the economy is broad-based in the aftermath of the global economic crisis. It is forecasting 2.1 percent growth for 2011 and 1.8 percent in 2012, when it expects exports to fall.
“Domestic demand is benefiting from low interest rates, increased employment and continuing immigration. In spite of the strength of the Swiss franc, exports have grown due to increased global demand.” Geopolitical tensions could have a negative impact and are the biggest risk factor, agreed the IMF team, who visited Switzerland from 18 to 28 March. Tensions in the euro zone could also spark difficulties.
The SNB (Swiss National Bank) could consider tightening monetary policy, the IMF group says, with rebuilding its capital a priority. The central bank’s capital was drained during the crisis, as were those of many governments. Future dividends to the cantons and the Confederation should be made subject to the ability of the SNB to replenish its capital.
The heaviest criticism was reserved for the banking regulatory system, which needs further work, according to the IMF. The Federal Department of Finance will create a working group to follow up one issue: the mandates of the SNB and Finma, the financial supervisory body, should be clarified, according to the IMF.
Additional capital requirements provided for in the Federal Council’s “too big to fail” consultation draft will be instrumental in limiting the risks posed by systemically important banks. Consequently, the IMF experts warn against allowing overly generous “rebate” possibilities. Switzerland’s new capital requirements are among the most stringent in the world, going well beyond bank capital requirements that are part of the new, global BIS (Bank for International Settlements) Basel agreement.
In the mortgage market, the IMF sees a certain degree of easing in financial institutions’ lending standards, says Bern. “The interest-rate sensitivity of banks’ balance sheets has increased due to the tendency towards fixed-rate mortgages with long maturities” and the IMF is in favour of “implementing more conservative affordability standards”, which could be bad news for new home owner wannabes.
The IMF has given its support to several ongoing improvements:
- “The neutral fiscal position to be expected over the next few years is considered appropriate” says Bern’s statement on the IMF visit
- the measures to restructure disability insurance must continue
- the IMF welcomes the ongoing efforts to strengthen financial planning and statistics.
Zurich, Switzerland (GenevaLunch) – Hans Baer, scion of the Baer banking family in Zurich died Monday 21 March, age 83, the family announced Tuesday, and with him disappeared a period in Swiss banking history. He was the father of Raymond Baer, chairman of the Board of the Julius Baer Group.
Hans Baer ruled over the family business, one of Switzerland’s most successful private banks, for nearly 30 of the 50 years he worked for the firm, as president of the Executive Board and then chairman before his retirement in 1996. He oversaw the bank’s opening of offices in New York and London. He also oversaw the first public offering of shares, not a surprise given that years earlier, in 1983 when I, as a young reporter working for Time Magazine interviewed “Papa Baer” (and he looked the part, charming and warm and larger than life), he told me that this was where the future of his bank would lie.
The bank later went public and is now listed on the Swiss Stock Exchange as a member of the SMI group of top 20 companies. It is Switzerland’s third largest bank.
Hans Baer was also well known for his active involvement in the arts and for his dynamic contributions to his hometown of Zurich. He was the founding president of the Zurich Festival, among his many projects.
Credit Suisse, Zurich
Zurich, Switzerland (GenevaLunch) – Four bankers who work for Credit Suisse have been indicted in eastern Virginia in the US on charges of conspiring with other bankers to defraud the US government, its justice department and the IRS tax arm of the government. The Department of Justice (DOJ) press release does not name the bank, but Credit Suisse has confirmed the information to TSR, Swiss public television, and other Swiss media.
The four include a Geneva banker, Marco Parenti Adami, and three others, Emanuel Agustino, Michele Bergantino and Roger Schaerer.
Parenti Adami is a senior manager whose several duties include responsibility for North American clientele for French-speaking Switzerland at Credit Suisse, where he has worked for 17 years.
The DOJ statement says:
“According to the indictment, the defendants and their co-conspirators solicited U.S. customers to open secret accounts because Swiss bank secrecy would permit them to conceal from the IRS their ownership of accounts at the bank and other Swiss banks. It is further alleged that they provided unlicensed and unregistered banking services and investment advice to customers in the United States in person while on travel to here, including at the international bank’s representative office in New York City and by mailings, e-mail and telephone calls to and from the United States.
“The indictment further alleges that the defendants and their co-conspirators caused U.S. customers to travel outside the United States, to destinations including Switzerland and the Bahamas, to conduct banking related to their secret accounts; opened secret accounts in the names of nominee tax haven entities for U.S. customers; accepted IRS forms that falsely stated under penalties of perjury that the owners of the secret accounts were not subject to U.S. taxation; advised U.S. customers to structure withdrawals from their secret accounts in amounts less than $10,000 in an attempt to conceal the secret account and the transactions from American authorities; and advised U.S. customers to utilize offshore credit, and debit cards linked to their secret accounts and provided the customers with such cards, including cards issued by American Express, Visa and Maestro.”
Credit Suisse, which says it is cooperating with the DOJ in the investigation, insists that it is not the target of the IRS. But the DOJ statement notes that “As of the fall of 2008, the international bank maintained thousands of secret accounts for customers in the United States with as much as $3 billion in total assets under management in those accounts. The conspiracy dates back to 1953 and involved two generations of U.S. tax evaders including US customers who inherited secret accounts at the international bank.”
TSR points out that the case against Switzerland’s other major bank, UBS, began in a similar way, with charges against a small number of bank managers before it escalated into a demand by the DOJ for data on thousands of Swiss bank accounts.
The bankers, if found guilty, could face up to five years in prison and fines of $250,000 each.
Link to other sites: Bloomberg, US Department of Justice, TSR (Fre)
Bern, Switzerland (GenevaLunch) – PostFinance, the banking arm of the La Poste, the Swiss postal system, is giving deposit account holders 2010 centimes, a little over CHF20, to say thanks for making 2010 a good year.
Profits were up 28 percent, it announced Wednesday 23 February, to CHF575 million. PostFinance acquired 119,000 new customers who set up 198,000 new accounts.
“Despite the difficulties on the financial markets, good interest income was one of the main factors leading to this excellent result, along with cost discipline,” PostFinance noted in its press releasee.
Euro deposit holders will receive 2010 cents if they had interest-earning accounts 31 December 2010.
Bern, Switzerland (GenevaLunch) – The Swiss government is increasing sanctions against Iran to the same level as those put in place by its main commercial partners, the government said Wednesday morning 19 January. The tougher measures were taken to ensure that Switzerland is not used by Iran to get around the stricter sanctions put in place by the European Union, in particular, in October 2010.
The list of persons whose assets are frozen is also being extended, the same day that the Swiss have moved to freeze assets of former Tunisian President Ben Ali and Laurent Gbagbo of Cote d’Ivoire, who has refused to give in to pressure from other countries to acknowledge he did not win his country’s recent elections.
Swiss exports to Iran were CHF700 million in 2010, mainly pharmaceuticals, machinery and agricultural products. Imports came to CHF41 million. The volume of trade fell by CHF63 overall, compared to 2009.
The new level of sanctions is also needed to give legal protection to Swiss companies operating internationally, according to Bern, as they now risk being caught between two levels of sanctions.
Zurich, one of three Swiss cities where JP Morgan will expand its operations
Zurich, Switzerland (GenevaLunch) – Switzerland’s preeminence as a banking powerhouse does not seem to be fading; a Tages-Anzeiger article published today 5 January says giant financial services firm JP Morgan will be bringing hundreds of new jobs to Geneva, Zoug and Zurich.
Martin Schütz, Co-Chairman of JP Morgan in Switzerland is quoted in the article as saying their work force will grow to 1,000 employees; that is an increase of almost 400 new jobs from now until 2012.
“Switzerland has always been at the heart of our international finance strategies” said Schütz. “Our customers benefit from a strong currency, minimal inflation, prudent national banking and high quality service,” he added.
Zoug is becoming an important market in JP Morgan’s financial strategies as the town is developing into an international trade centre of raw materials and metals.
In December 2010 JP Morgan in London also expanded operations thus reaffirming the company’s previous statements that Europe is becoming an important market for its expanding financial and trade services.
JP Morgan Chase’s corporate headquarters are in New York City.
PostFinance sued by Pirate Party
Geneva, Switzerland (GenevaLunch) – Klaus Schwab, head of the World Economic Forum, says he would like to, and should, invite WikiLeaks founder Julian Assange to the WEF meeting in Davos in January.
SonntagsZietung published an interview with Schwab Sunday 19 December. Assange cannot leave the United Kingdom under the terms of bail granted by a judge there, Schwab pointed out, so unless Sweden completes its investigation of charges of sexual misconduct brought against Assange and releases him, it’s unlikely he will make an appearance at the Swiss resort.
Schwab told the newspaper that the focus this year at Davos, which every winter pulls in some of the world’s top political and business leaders, will be on lessons learned from the financial crisis, but that WikiLeaks will clearly be on the agenda. “WikiLeaks is the expression of a new reality,” he told the Swiss-German newspaper.
“The balance privacy and transparency has changed fundamentally, and governments, businesses and decision-makers will have to accept that from now on, they are living in glass rooms.”
Also over the weekend, the Swiss Pirate Party brought charges against PostFinance, with Swiss federal authorities, report several Swiss media. PostFinance is the banking arm of Swiss Post. Its web site was attacked in revenge for closing an account opened by Julian Assange. The Pirate Party in early December distanced itself from the attacks, which were carried out by a group of hacker activists called Anonymous.
The party, which supports Assange, published a paper 11 December saying it believed the post office bank had acted illegally by publishing Assange’s bank account information, under Swiss banking secrecy and privacy protection laws. PostFinance noted when it published the information that Assange himself had already made this information widely available to the public and that he in fact publicized it.
Bern, Switzerland (GenevaLunch) – Swiss banks will have tougher capital requirements for trading, known as the Capital Adeqacy Ordinance, starting 1 January 2011, a year ahead of the rest of the world, the Swiss Federal Council (cabinet) announced Wednesday 10 November. New capital requirements have been drawn up by the Basel Committee of central bankers, known as Basel III, but the committee delayed the implementation deadline under pressure from countries. US Treasury Secretary Timothy Gleisner and the European Commission’s internal market commissioner Michel Barnier agreed in October 2010 to a December 2011 deadline for the new trading book rules.
Switzerland has already taken a number of protective steps in the wake of the December 2008 bailout of UBS, the country’s largest bank: higher overall capital requirements and tougher rules on liquidity were adopted for the country’s big banks in October 2010. New rules also created restrictions on bankers’ pay and a cap on the leverage ratio.
The Federal Council noted in its press release on the decision that “the financial crisis made it quite clear that the risks of loss attached to trading activity and securitization were underpinned by insufficient capital levels.
Date for compliance with special US treaty covering UBS draws near
Bern, Switzerland (GenevaLunch.com) – The Swiss Federal Council has approved four double taxation treaties, with Poland, The Netherlands, Japan and Turkey, all of which now conform to OECD requirements. The governing council of seven has forwarded these to the Swiss Parliament, which can consider an optional vote to approve the treaties. Switzerland earlier this year gave final approval to 10 0ther double taxation agreements.
The government also approved two completely new agreements, with Georgia and Tajikistan, but noting that “because a speedy entry into force of the DTAs was sought, Switzerland, Georgia and the Republic of Tajikistan agreed to waive the extended administrative assistance clause in accordance with the OECD standard for the time being.”
The five countries with veto power within the UN Security Council have agreed to tougher sanctions against Iran over its nuclear plans, and what US Secretary of State Hillary Clinton is calling a “strong” draft resolution is being circulated among the 15 members. Iran agreed just a day earlier, Monday 17 May, to a deal with Turkey that Brazil helped broker, which has it sending most of its low-enriched uranium to Turkey in exchange for enriched fuel for a research reactor, a deal similar to one suggested by other Western countries in 2009.
The US accused Iran Tuesday of trying to deflect criticism of its nuclear programme. The new, fourth sanctions package is a carrot-and-stick solution to dealing with Iran: it offers tough measures against shipping and banking, and would stop any shipments to Iran of conventional arms, but it also encourages Iran to cooperate with nuclear inspections.
Links to other sites: Aljazeera, BBC, Financial Times, Reuters/New York Times
Preventive measures but also intervention options part of new Swiss regulatory system
Bern, Switzerland (GenevaLunch) - Switzerland will not create a new tax on banks unless there is a coordinated international effort to do so. The announcement Wednesday 28 April was the latest following a series of decisions made by the Swiss government this week concerning banks and the financial sector as a whole. The accent will instead be put on bank regulatory measures to strengthen the industry’s ability to withstand financial crises. “Such measures are more effective and efficient than fiscal measures. A financial activities tax should thus be considered [only] when a coordinated international procedure is emerging.”
The government notes that “massive budgetary problems” in several countries have led to calls for more taxes on the financial sector, but in Switzerland the bailout of UBS, the country’s largest bank, resulted in a gain of CHF1.2 million for the government, not a loss. The federal government does not currently need to generate additional tax revenues, it notes, and it considers tax solutions to be an unsuitable way to manage systemic risks in the finance industry.
