Will Swiss Banks Have to Reinvent Themselves?
There is no doubt the landmark tax deal between the US and Switzerland this week is a success for UBS, Switzerland’s biggest bank by assets under management.
By averting a lengthy and painful trial and dodging the bullet of another settlement fine which could have rendered the bank’s capital ratio dangerously thin, UBS is now facing the difficult question of returning to profitability and regaining clients’ trust.
But what seems as the end of a troublesome era for UBS may turn out to be the beginning of more headache for the rest of the Swiss banking industry: an important aspect of the tax deal between Switzerland and the US is the agreement to provide account information on other Swiss banks should the IRS suspect any tax evasion practices in those institutions.
No bank will be shielded by the famous banking secrecy anymore now that the diplomatic showdown between the US and Switzerland has set an important precedent for future requests.
In addition to that, other countries like Germany, Italy or the UK could take the settlement with the US as their cue to make similar requests to Swiss banks and the Swiss government.
And this at a time when foreign investors’ trust in Swiss institutions (with exceptions) is shrinking: according to statistics from the Swiss National Bank, holdings of securities by foreign investors have fallen around 19 percent or 520 billion Swiss francs ($546 billion) from a year ago.
Does this mean the sacred banking secrecy is lifted? No — at least not in correct legal terms and according to the Swiss government.
Floodgates Are Open
But many experts tell CNBC that the banking secrecy laws are seriously weakened and any attack by other countries will yield an even further fragile banking secrecy. Before long, the law which has been part of the Swiss Constitution since 1934 may just be another obsolete text in Swiss law books.
Pressure on Swiss banks will be increasing, not decreasing – this is for sure. However, it will be important to make a distinction between the different institutions.
"Those who will suffer are those smaller organizations in Switzerland and Liechtenstein who were living off banking secrecy and nothing else — they will struggle and maybe disappear because they only had the one product," Stephane Garelli, professor of international business policy at Lausanne University, told Reuters.
It will be crucial for those institutions who do want to remain competitive in the wealth management industry to tout other virtues than their secret accounts.
And there is certainly no reason for Swiss banks to hide behind their foreign peers: many of the traditional Swiss banks have excellently trained staff with years of experience in private banking, where values like discretion, quality of services and trust stood above all.
Furthermore, Swiss banks will always be able to use the economic and political stability of Switzerland as their unique selling point.
And even if wealth management will be responsible for a smaller percentage of revenues going forward, Swiss banks (especially Credit Suisse) have shown they are among the top banks in the world in investment banking services.
Above all, a return to banking services without the use of legal practices, excessive yearning for superior returns and hubristic managers will determine which bank will be the winner — or the loser — in the aftermath of the tax investigation scandal.
—Reuters contributed to this report.