As aggressive attempts from European
governments to claw back undeclared taxable assets draw to a close,
there is a sense the worst may be over for offshore-focused private
banks. But there may be more trouble on the horizon as tax exchange
agreements become more rigorously enforced.
Private banks in offshore centres have
weathered the worst of the outflows from national tax amnesties,
according to research.
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The impacts of amnesties on offshore centres,
notably Switzerland and Liechtenstein, have not been “excessive”,
according to analysis by A.M. Best, a credit rating organisation.
It said the offshore private banking business model had suffered
long-term damage, but remained sustainable for banks of sufficient
scale.
Countries including the US, UK, Germany and
Italy have offered voluntary disclosure programmes or tax amnesties
to force tax evaders holding assets overseas to declare and
repatriate their funds.
“We believe the offshore private banking
business model has suffered material, long-term damage, but this
model remains sustainable,” said the report, written by
analyst Dean Portelli.
“Institutions with stronger brands and
franchises remain well placed for growth, whilst for others, the
longer term credit profile may have been damaged by the strain on
earnings.”
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By GlobalDataPrivate banking institutions need to develop
new and existing revenue streams, with onshore banking and
institutional asset management likely to become the key focus of
many.
Small private banks with most to lose
Small private banks are likely to be the
biggest losers from this trend, with increased mergers and
acquisitions expected as a result. In an interview in Private
Banker International’s last edition (see PBI 256), Ray Soudah, founder of wealth
management M&A consultancy Millenium Associates, said there
were a lack of quality targets on the market currently. He said
many current businesses for sale suffer from “unquantifiable
challenges”.
“Pure, onshore, clean, highly profitable
businesses – and this is not to denigrate the people that were
running other banks – these types of banks are not those which have
become available for sale,” said Soudah.
The mergers and acquisitions market is
currently being driven by regulators, with national governments and
the EU ordering bailed out institutions to offload non-core
business. Commerzbank was told by the EU to sell its UK private
bank Kleinwort Benson, ING sold private banking assets in
Switzerland and Asia after receiving a government bailout in 2008
and Dexia is also said to be looking at a sale of its
Luxembourg-based BIL business, which has €15 billion ($22 billion)
under management (see PBI 255). Soudah said he expected
“commercially driven” merger and acquisition activity would pick up
again in three to six months.
San Marino badly hit
San Marino was among the worst hit of the
offshore centres, according to the research, with over a third of
client assets (€4.1 billion, $5.7 billion) in the republic shifted
to other jurisdictions, mainly Italy. There are also “material
concerns” regarding the San Marino banking industry as a result of
the outflows, sparked by a successful Italian tax amnesty and
alleged illegal banking practises at Cassa di Risparmio della
Republica di San Marino. Banks in the country are at risk of
further outflows until the amnesty – originally due to end on
December 15 – expires in April.
There could be liquidity concerns at other
offshore financial centres as tax exchange agreements become more
rigorously applied, according to the research. Some offshore
centres, for example, have signed agreements between themselves or
with countries not considered to be major trading partners, like
Samoa and Greenland.
These agreements could be challenged by the US
and the Organisation for Economic
Cooperation and Development (OECD) in the future, who may
insist on a greater number of tax exchange agreements to be signed
to ensure cooperation. Currently, financial centres need to have
signed 12 tax agreements to feature on the G20’s whitelist of
cooperative jurisidictions.
|
PERFORMANCE |
|||||
|
Net new money – Switzerland and |
|||||
|
AuM (2008) |
Net new money flows |
2006 |
2005 |
||
|
2008 |
2007 |
||||
|
UBS |
2,174 |
-226 |
141 |
152 |
149 |
|
Credit Suisse |
1,106 |
-3 |
43 |
88 |
58 |
|
Julius Baer |
275 |
-5 |
36 |
27 |
16 |
|
HSBC Private Bank (Suisse) |
146 |
14 |
20 |
23 |
18 |
|
Union Bancaire Privee |
101 |
1 |
15 |
12 |
9 |
|
Clariden Leu |
94 |
-1 |
3 |
5 |
n/a |
|
Banque Privee Edmond de Rothschild |
82 |
5 |
10 |
4 |
4 |
|
BSI Group |
78 |
7 |
3 |
5 |
2 |
|
LGT Group |
76 |
-1 |
11 |
8 |
6 |
|
Bank Sarasin |
70 |
15 |
11 |
4 |
1 |
|
Vontobel |
62 |
4 |
6 |
5 |
1 |
|
Liechtensteinische Landesbank |
49 |
-1 |
3 |
3 |
2 |
|
VP Bank |
29 |
-1 |
3 |
3 |
0 |
|
Syz & Co |
18 |
4 |
6 |
6 |
n/a |
|
Merrill Lynch Bank (Suisse) |
18 |
0 |
4 |
2 |
1 |
|
*figures may differ from PBI research |
|||||
