Swiss wealth managers are resuming the fight for American clients four years after the U.S. sued UBS AG in a case that undermined banking secrecy and triggered the withdrawal of billions of dollars from Zurich and Geneva.
UBS expects to report assets at its Securities and Exchange Commission-registered business rose 20 percent to $4.6 billion last year, even as more recent market entrants, including Syz & Co. Group and Reyl Group, vie with Switzerland’s biggest bank for Americans who can prove their funds are declared.
SEC-registered banks are competing for $40 billion of American assets in the Alpine country as a U.S. Department of Justice tax-evasion probe embroils at least 11 Swiss firms. Wegelin & Co., which two years ago said American clients risked becoming “pariahs” because of tougher asset-disclosure rules, is closing after the U.S. indicted the oldest Swiss bank for helping customers hide money from the Internal Revenue Service.
“Some have been sailing a little close to the wind,” Eric Syz, a managing partner of Syz & Co. Group, said in an interview from his office on Rue du Rhone, Geneva’s priciest shopping street. “We’re starting on a clean slate.”
While profit margins on SEC-regulated assets are smaller than on traditional offshore funds, the U.S. retains its importance as the largest asset management market in the world, said Syz. The firm, which began servicing Americans last year, predicts its Syz Swiss Advisors SA business will boost client assets eightfold to $900 million in five to seven years.
UBS’s predicted asset growth should consolidate the top ranking of its SEC-registered business, ahead of Pictet & Cie., which had $3.3 billion at the end of 2011. Zurich-based UBS has more than 1,500 clients at its SEC unit.
Switzerland attracted $2.1 trillion to cross-border accounts during an era of undeclared money that started to crumble when the DoJ sued UBS in 2009 for helping Americans dodge taxes. UBS resolved that matter by paying a $780 million fine, admitting it helped foster tax evasion and handing over client names to the U.S.
Pictet, Geneva’s largest private bank, saw net inflows at its SEC-registered business, which was “one of the most important growth segments” over the past few years, Senior Partner Jacques de Saussure said in November. The DoJ conducted a “general inquiry” into Pictet’s U.S. wealth management business, the bank said that month.
North American offshore assets in Switzerland have slumped 70 percent since 2009 and only a third of the remaining assets may be managed by SEC-registered advisers, according to Boston Consulting. Worldwide North American millionaires’ wealth will surge to $41.5 trillion by 2016, according to the Boston-based firm.
The growth in SEC-registered business comes as other banks release their U.S. assets to avoid the associated legal and compliance costs.
Credit Suisse Group AG, Switzerland’s second-biggest bank, dissolved its U.S. cross-border business last year and Julius Baer Group Ltd. ended all relationships with U.S. offshore clients between 2009 and 2011. Both Zurich-based banks are part of the DoJ investigation.
HSBC Holdings Plc, Deutsche Bank AG and Bank of Singapore Ltd. said they have rejected Americans looking for non-resident services outside the U.S.
With some firms shunning Americans, Reyl Group aims to double its $100 million of U.S. client funds by 2015, Chief Executive Officer Francois Reyl said.
“We check to within an inch of a doubt that our potential clients are fully declared,” said Reyl. “Once that’s done, whether or not the account comes from a bank that may have had problems with the U.S. authorities is irrelevant.”
The SEC-registered advisers are targeting Americans who have banked abroad while working in different locations for multinational companies and wealthy U.S. residents who want to diversify their investments.
“Some banks servicing U.S. clients were both unaware of their clients’ tax status and their own regulatory obligations under the SEC,” said Curtis Childs, managing partner at Bellecapital International AG in Zurich. “Now there’s a wholesale exodus of banks from the market because the risks of non-compliance are very clear.”
Under the SEC-registered regime, foreign advisers follow U.S. rules on providing investment advice so they don’t arouse scrutiny from the authorities or risk being detained as they enter the country to visit customers. Switzerland is also poised to implement the Foreign Account Tax Compliance Act, or FATCA, a U.S. anti-tax-evasion law that forces banks to share information on client assets with the IRS.
Bellecapital boosted its U.S. assets by 74 percent to $245 million in the nine months through 2012, Childs said.
Maseco Private Wealth AG, which is based in Geneva and Zurich and has doubled its assets under management from the $214 million reported March 30, expects the SEC-registered adviser market will reach saturation point this year, prompting a period of consolidation for smaller rivals.
“It’s a daunting process for some of the newcomers,” Yann Rousset, CEO of Maseco in Switzerland, said in a telephone interview. “It will be interesting to see who has the guts to remain in this niche market.”