UBS AG (UBSN), Switzerland’s largest bank, plans to boost client assets in the U.K. this year even as Swiss competitors try to break into London’s $1.2 trillion private wealth market to help counter withdrawals at home.
UBS forecasts an increase in assets of 4 billion pounds ($6.6 billion) this year, including net new money inflows, Jamie Broderick, head of UBS’s U.K. private bank, said in a telephone interview. The world’s largest wealth manager increased assets at its British unit by 15 percent to 31 billion pounds in the nine months through September, he said.
A global crackdown on tax evasion has forced the Swiss government to weaken laws protecting client secrecy that have helped transform the country into the world’s largest cross-border wealth-management center with about $2.2 trillion of assets. With European clients pulling money from Zurich to Geneva, Swiss banks are looking to expand abroad.
“The tax situation around undeclared money in Switzerland is clear, while London’s international character is reeling in Swiss wealth managers,” said Alevizos Alevizakos, a London-based analyst at Mediobanca SpA. “Competition is very tough.”
Edmond de Rothschild Group, owned by Baron Benjamin de Rothschild, said in November it hired bankers to attract affluent individuals and entrepreneurs for its private client business in London. Julius Baer Group Ltd. (BAER) last year started integrating Merrill Lynch London financial advisers as part of a 2012 agreement with Bank of America Corp., while Credit Suisse Group AG (CSGN) absorbed Morgan Stanley (MS)’s U.K. private bank.
Swiss banks are competing with British wealth managers such as Barclays Plc (BARC), the U.K.’s second-largest lender by assets. The U.K. has about 1.5 million millionaires, in dollar terms, with 2.4 million residents among the wealthiest 1 percent in the world, said Phil Cutts, head of Credit Suisse’s U.K. private bank.
The U.K.'s private-banking market has ``considerable growth potential,” Cutts said by e-mail.
London’s banks managed 740 billion pounds in assets for wealthy customers at the end of 2012, up from 674 billion pounds a year earlier, according to research firm PAM Insight. The study ranked UBS’s U.K. unit fourth by client assets, behind Royal Bank of Scotland Group Plc’s Coutts, managing Queen Elizabeth II’s funds, Barclays and St. James’s Place Plc. The three banks had combined assets of about 137 billion pounds.
UBS and Credit Suisse’s push to lure wealthy Britons predates the watering down of secrecy laws, which were first introduced in 1934. UBS, through its predecessor, the Swiss Bank Corp., established a London office in 1898, while Credit Suisse started advising customers in the U.K. in 1954.
That momentum gathered pace after Switzerland last year agreed to help develop global standards allowing banks to share customer data, while the U.S. stepped up its probe into untaxed assets abroad.
“We’re now in an era of compliant confidentiality with banking secrecy dead,” said Jeremy Jensen, a partner at PricewaterhouseCoopers LLP in London. “Switzerland has to compete on its merits and strengths as an investment center.”
With withdrawals from customers in western Europe seen exceeding about 30 billion Swiss francs ($33 billion) at both UBS and Credit Suisse, according to the banks’ own estimates, and Julius Baer, Switzerland’s No. 3 wealth manager, reporting outflows from what it called “tax regularizations of legacy assets,” competition in the U.K. is set to intensify.
Credit Suisse, which oversaw almost 12 billion pounds in the U.K. at the end of 2012, according to PAM Insight, may join the top 10 wealth managers after purchasing the Morgan Stanley unit. The bank declined to provide details on U.K. assets.
Julius Baer, which gained access to both resident and resident non-domiciled customers through its Merrill Lynch purchases, is targeting “international entrepreneurs as well as other wealthy individuals,” said Adam Horowitz, who oversees the Zurich-based bank’s U.K. unit.
“U.K. managers have been recording record assets under management and profits in recent years,” said James Anderson, founder of PAM Insight, which is based in London and Geneva. “The market is flourishing and the resident non-dom tax policy has attracted a lot of assets.”
Britain exempts wealthy non-domiciled residents from taxes on foreign income, in some cases for an annual fee. Wealth managers are able to hold money in Switzerland without declaring income and gains to the U.K. provided that their non-dom status is verified by a British tax adviser.
Patrick Odier, chairman of the Basel-based Swiss Bankers Association, in an Oct. 24 interview called London a “great opportunity” for firms to expand wealth management.
EFG International AG (EFGN), controlled by Greek billionaire Spiro Latsis and his family, counts individuals from the U.K., the Middle East, central Europe and Greece, as well as Indian emigrants, among its London customers. The Zurich-based bank is the third Swiss firm among the top 20 private wealth managers in the U.K., according to the PAM Insight ranking.
Other Swiss asset managers are just stepping up efforts toward building a bigger presence for private clients.
Pictet, Switzerland’s biggest closely held wealth manager, and Lombard Odier, Geneva’s oldest bank, have been targeting institutional firms such as pension funds in London, with private client services “in the slipstream,” according to Sebastian Dovey, co-founder of Scorpio Partnership, a London-based consultancy. The two private banks, which jointly oversee more than 450 billion francs, declined to comment.
Vontobel (VONN), which manages about 3 billion francs for U.K. institutional customers, is also targeting affluent individuals, said Reto Giudicetti, a spokesman in Zurich.
Even if they close the gap on UBS, smaller Swiss wealth managers still need to compete with some of the world’s oldest financial institutions for London’s millionaires. British private banks Coutts, Child & Co. and C. Hoare & Co. trace their origins to the 17th century, some 100 years before Geneva’s first lenders were established.
The centuries-old private-banking industry in London accumulated assets as the U.K.’s political stability and regulated financial-services industry attracted wealthy individuals seeking a haven from less stable regimes in other countries. The city’s property market, schools and cosmopolitan population also entice wealthy foreign families, with immigrants accounting for more than a third of London’s 8.2 million population, according to the U.K.’s 2011 census.
Scorpio Partnership’s Dovey said that Swiss firms may struggle to attract assets in the U.K. without a fully-fledged onshore banking presence providing services from deposit taking to mortgages instead of relying on satellite offices.
“The proposition of Swiss banks trying to get clients from the U.K. to use local agents for investment advice while depositing their assets in Switzerland is a really tough one,” he said. “They’re making a mistake if they think a suitcase and a representative office in London is sufficient.”
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