Swiss Banks Winning Investors With Weakening Euro Buoying Franc
A pedestrian passes a Julius Baer branch in Zurich. Photographer: Adrian Moser/Bloomberg
Swiss banks, the haven of choice for the wealthy until last year’s purge against financial secrecy, are winning funds as mounting debt in Europe spooks investors.
Lombard Odier, Geneva’s oldest private bank, Julius Baer Group Ltd. and Pictet & Cie. are among the Swiss companies catering to millionaires that are reporting an increase in business as clients seek to protect their assets from the 8 percent drop in the euro against the Swiss franc this year.
“While we’re not seeing huge inflows, there’s a clear trend for clients wanting to have custody of their assets in Switzerland,” said Anne-Marie de Weck, a managing partner at Lombard Odier, in an interview. “There’s an increasing interest that wasn’t there six or 12 months ago.”
Swiss banks have been under pressure from foreign governments to disclose more information about customers as part of a global hunt for tax evaders. This year, their reputation for financial security is helping attract wealth as the euro plunges to a record low against the franc because of concern about a debt crisis in Greece spreading across Europe.
Lombard Odier’s assets have climbed 6 percent to about 156 billion francs ($141 billion) so far in 2010, based on de Weck’s estimate. Zurich-based Julius Baer managed 175 billion francs in April, up 14 percent from the end of last year.
The increase occurred as stock markets fell worldwide, with the MSCI World Index of developed markets declining 5.4 percent this year after rising 27 percent in 2009.
Positive Inflows
“Flows have turned positive again from Europe for all banks in the last three or four months,” said Boris Collardi, chief executive officer of Zurich-based Julius Baer, in an interview.
Swiss banks held onto 27 percent, or $2 trillion, of the world’s privately invested riches last year, unchanged from before the financial crisis started in 2007, Boston Consulting Group said in a report published this month.
They also earned an average 14 basis points more than their European rivals, or an extra $1.4 million for every $1 billion overseen for clients, according to the report.
It’s too early to quantify how much Switzerland will benefit from the decline in the euro, Gregoire Bordier, the CEO of Geneva-based private bank Bordier & Cie., said in an interview. His bank’s assets rose about 6 percent to 9.5 billion francs since the end of 2009 and the company may manage as much as 10.3 billion francs by the end of the year, he said.
No ‘Flood’
“We’d expected that it might lead to a flood of Greeks leaving the country, but it’s not been the case because people already have structures in place,” Bordier said. By the end of the year, Switzerland may see more inflows as Europeans look to spread their risk further, he said.
The new money deposited from clients in the euro region may leave just as quickly as it arrived, said Nicolas Pictet, a partner at Pictet & Cie. in Geneva.
“This is hot money, which doesn’t make the basis for a strong client relationship,” he said in an interview. “No one comes to Switzerland because it’s ugly at home, they come to Switzerland for its traditional attributes.”
Pictet’s assets rose 3.5 percent in the first quarter to 260.7 billion francs, according to the bank’s latest figures.
European budget deficits, spending cuts and tougher banking regulations are helping Switzerland, said Urs Roth, chief executive officer of the Swiss Bankers Association in Basel.
Good ‘Housekeeping’
Switzerland posted a budget surplus equal to 0.7 percent of gross domestic product, or 2.7 billion francs, last year and the government forecasts a deficit of 1.2 percent this year. That compares with a deficit of 6.3 percent of GDP in the euro region in 2009 and a projected shortfall of 6.6 percent in 2010, according to the European Commission.
“We’re benefitting from careful housekeeping,” Roth, who represents more than 300 banks, said in an interview. “There’s a general feeling that Switzerland is one of the most politically, socially and economically stable countries.”
After threats led by the U.S., Germany and France, Switzerland avoided a blacklisting at the Paris-based Organization for Economic Cooperation and Development by signing a series of taxation accords and pledging to implement an international standard for combating tax evasion.
UBS AG, Switzerland’s biggest bank, had fund outflows of almost 90 billion francs from its wealth management and Swiss bank unit last year amid a dispute with the U.S. over tax dodgers. The country’s private banks, excluding UBS and Credit Suisse Group AG, had a net outflow of 16 billion francs from their Swiss businesses in 2009, according to statistics from the Swiss National Bank.
“Lots of clients are coming back to Switzerland with their wealth,” Swiss Economy Minister Doris Leuthard told reporters in Geneva on June 2. “It’s proof to me that attacks on the country were politically motivated and that only undeclared assets are under pressure,” she said.
To contact the reporter on this story: Warren Giles in Geneva at wgiles@bloomberg.net.
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