‘Perfect story’ scuppers Swiss brand clean-up

Increased public appetite for financial scandal, following the ‘HSBC affair’, could lead to the discovery of more skeletons rattling around Geneva’s lakeside private banking vaults. 

“It’s the perfect story,” reflects an adviser to the bank. “There’s a little bit of politics, some finance and tax issues and unfortunately for us, it has bubbled up just before an [UK] election.”

Let’s not forget tax avoidance and banking secrecy were until recently legally permitted in Switzerland. Bankers breaching confidences even risked jail sentences.

But this old model heard its death sentence in April 2009, when Switzerland accepted a post-crisis protocol of the new world order from the G20 and OECD. A major settlement between UBS and the US authorities signalled the changing of the eras.

“Switzerland – amongst other financial centres – has been trying and with a certain degree of recent success – to upgrade the image of itself and the private banking industry,” says Zurich-based strategic consultant Ray Soudah of MilleniumAssociates.

This has been achieved, he says, by retraining bankers, and repositioning services in line with internationally acceptable compliance standards.

Other Swiss financiers, clearly rankled by adverse publicity, are jumping to their country’s defence. “This is a matter related to HSBC, not Switzerland,” says  Francois Savary, chief strategist at Geneva’s Reyl family office. “Switzerland has done a great job in aligning to the OECD international standards.”  

But a series of cumulative leaks has provided setback after setback to the industry’s best efforts to repair itself. There is a belief among Geneva watchers that HSBC’s offloading of much of its Swiss business to LGT and the expected sales by RBS and RBC of their own Swiss subsidiaries are political moves for consumption in these banks’ home countries, where financial institutions are yet to regain trust lost during the 2008 crisis. 

There may yet be problems pushing these deals through, reckons Mr Soudah, with the latest news fuelling fallout from economic uncertainty caused by decoupling the Swiss franc from the US dollar.

As investigations into money laundering activities intensify, the willingness of private banks to accept clients with colourful backgrounds is becoming “almost non-existent,” he says. Banks, fearful of further data leaks and thefts are increasingly desperate to avoid bad publicity. Even if clients are “fully compliant,” few major banks are willing to take the risk of ‘onboarding’ them.  

Whether boutique players are cleaning up their act is a matter of debate. “They will keep on going until the shutter comes down,” says one Geneva consultant. 

The allegations of wealthy individuals using HSBC to evade tax has done almost irreparable damage to private banking, with many convinced the notion of a transparent system goes totally against the mentality of the traditionally secretive Swiss financial system. 

Wealth managers will bear the brunt of public wrath, believes Amin Rajan, CEO of the Create consultancy. “Many of these wealthy people were bankers at the centre of the global financial meltdown,” he says.

“Not only did they emerge unscathed, but many of them went on to make even more money. Now it transpires they have turned tax dodgers. The whole HSBC episode shows how rotten the world of high finance is and nor is this an isolated case.”

Regulators and tax authorities have been caught napping once again, he says, with the UK authorities having known about these “sordid” practices since 2010, proving there is an “indecent love affair between politics and finance”.

It is high time, says Mr Rajan, for this tarnished industry to consider ways to improve its image as a good corporate citizen and to totally rethink the way it manages other people’s money.