Further evidence has emerged
that Swiss private banking should surmount the outflow of client
money from its new round of tax agreements. Now treaties with
Germany and the UK have been signed, we look at how the clean up of
untaxed money in secret accounts could impact assets in
Switzerland.
Go deeper with GlobalData
Tens of billions of Swiss francs of
client assets are expected to be impacted by renegotiated
double-tax treaties between Switzerland and almost a dozen European
countries. Germany and Britain were two of the first such treaties.
Nationals of Germany, France and Italy together have an estimated
CHF470bn ($484bn) in untaxed Swiss accounts.
UBS and Credit Suisse have
indicated that the new tax deals could lead to declarations of as
much as CHF75bn from the offshore accounts of clients of the two
banks from neighbouring countries. CS and UBS have quantified their
cross-border business with large EU countries, as 12% and 10% of
their wealth management divisions’ assets under management (AuM)
respectively. The component vulnerable to foreign tax policy
changes has been disclosed at 3-4% at CS and 2-5% at UBS.
UBS has estimated that clients may
withdraw up to CHF40bn because of the renegotiated tax treaties;
representing about 5% of the bank’s total AuM.
Still, more bns of client money
could flow out from the rest of Switzerland’s 170 private banks as
clients either shift their money or banks are forced to take tax
from accounts and hand it over to foreign authorities.
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By GlobalDataBaer new net money
targets
Now Julius Baer has struck a note
of optimism, saying it would be able to reach its net new money
targets even if European clients withdraw undeclared money.
“We think that we will be able to
reach our net new money goals over the next years even if 25-30% of
undeclared money is shifted to other European countries,” chairman
Raymond Baer declared.
Baer, giving a
business update, said it was well into its medium-term target range
of 4 to 6% growth in net new money in the first ten months of 2010.
AuM rose to CHF175bn at the end of October, including the
acquisition of ING Bank (Switzerland) – an increase of 14% over
full-year 2009.
Matthew Clark, analyst at Keefe,
Bruyette & Woods, said top management at banks like Credit
Suisse, Baer and Bank Sarasin have a “pretty uniform view” of the
new tax treaties.
He said any agreements with EU
countries would not come into force until 2013 at the earliest,
given the time demands from the negotiation and ratification
process.
“We see this as a material
positive, allowing smoother management of the transition, as
vulnerable clients self-declare in the multi-year interim period,”
Clark said. “In essence, a mid-single digit gross outflow would
spook [confidence] if it occurred in a single period, but absorbed
over several years should be less noteworthy.”
A legitamised cross-border
model?
In fact, there could be upsides
from the new tax treaties, according to Swiss private bankers. This
new cross-border model for tax declaration could be regarded as a
“legitimisation mechanism” as it allows regularised funds and net
of back taxes to be retained in their current offshore accounts,
Clark said.
By contrast, recurrent tax
amnesties mounted by Italy, required funds to be restructured or
repatriated, a process which increased the chance of a “leakage” of
assets outside of the original private bank.
Several Swiss executives even suggest that, under a new regime,
the profitability of legitimised cross border client assets would
lead to increased trading activity, encouraged by more frequent
contact with clients.
