banking service for US clients, in what is tantamount to a UBS
winds down offshore banking for US clients further blow to the
offshore wealth sector. Some analysts believe the time will
eventually come when even large Swiss private banks have to decide
to drop offshore business completely, leaving small houses in
Geneva as the main offshore promoters from Switzerland.
It is understood that tougher US anti money-laundering and
terrorist regulations, such as the USA PATRIOT Act, were a major
factor behind UBS’s decision.
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The bank itself said that a strategic realignment involving winding
down US offshore services “enhances our ability to ensure
compliance with applicable laws and regulations”.
In a statement, UBS added: “We focus on servicing our US clients
within the respective specialised units. These are our US wealth
management operations for investors wanting to invest their assets
in the US… and UBS Swiss Financial Advisers [SFA] in Switzerland
for investors with an international profile.” This latter unit is a
Zurich subsidiary set up specifically to meet US regulatory
requirements but is excluded from Swiss banking secrecy on
securities transactions.
About 60 private bankers in Zurich, Geneva and Lugano are affected
by the wind-down, and a number may transfer to the SFA unit.
With 440 branch offices, UBS claims that it is already one of the
leading wealth managers in the US and is ideally placed to service
its clients locally. It also says that its UBS SFA operation has
developed successfully.
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By GlobalDataAt one stage, offshore US business may have amounted to as much as
one-third of UBS’s total asset base, particularly before it
acquired brokerage PaineWebber in 2000 which increased its client
base on onshore US business.
US regulations
UBS, which has about one-quarter of its global workforce in the US,
has become steadily more sensitive to US regulatory demands,
including agreeing last year to terminate business with Iran, a
major Washington target for financial ring-fencing.
At US researchers Aite Group, senior analyst Alois Pirker noted
that offshore banking has been “under pressure” for several years.
“While this line of business is still one of the most lucrative in
UBS’s stable, financial market and tax authorities in the
respective home countries of their clients have increased pressure
on private banks,” she said.
The build-up of compensating onshore businesses by UBS, Credit
Suisse and other banks in the US and Europe has given local
financial markets and tax authorities “even more influence” over
these banks.
Pirker contended that while countries in the Middle East and Asia
were “more tolerant” towards offshore banking, “other Swiss private
banking firms will soon have to decide if they want to be global
players in onshore or offshore private banking, as they will not be
able to be both in the long run”.
Capital increase
Meanwhile, UBS is appealing for support from shareholders as it
prepares for a 27 February vote on its proposal for a CHF13 billion
($11 billion) capital increase through the sale of a convertible
bond, to be bought by Singapore and an unidentified Saudi
investor.
Swiss activist shareholder Ethos, among the few Swiss funds to
openly defy the big corporations, has asked for a special audit
into UBS’s subprime losses. The fund also will endorse an attempt
by another Swiss fund manager, Profond, to cancel the bond and push
for an ordinary capital increase via a rights issue.
UBS said there was no need for a separate investigation given that
Switzerland’s EBK banking watchdog was already probing the reasons
that led to its losses.
At the same time, Swiss Finance Minister Hans-Rudolf Merz declared
that Switzerland would not come to the rescue of UBS, even if the
credit crisis were to hurt its business further.
“I can rule out that UBS would ever get an emergency state
guarantee,” he told the Tages-Anzeiger daily newspaper, urging
shareholders to approve the bank’s fund-raising plans. For the
robustness of its business, “it is better if (UBS) can raise its
capital base as planned by the supervisory board,” Merz said.
Compounding UBS’s woes, an application by the group for its first
banking licence in India to help build its wealth management
services has been delayed by the Reserve Bank of India, pending the
outcome of a regulatory enquiry (see
UBS blocked from branch expansion).
