Better Swiss relations with EU tops Mirabaud wishlist

Yves Mirabaud, one of four partners of the eponymous Swiss private bank managing client assets of SFr33bn ($34bn), is in fine form early on a mid-week morning in London’s once aristocratic St James’s district, despite a late night socialising with potential clients.

Sipping his tea with lemon, accompanied by a few slices of grapefruit and a frugal serving of scrambled eggs, he keeps his own counsel about the nouveau-riche celebrity characters he mixed with the previous evening over copious amounts of champagne in one of the West End’s premier night spots.

While he comes to see clients here five times a year, London is generally a stop-off to the lucrative hunting-grounds of the Middle East, where he runs Mirabaud’s regional private banking operation from Dubai.

“We see Dubai as the hub of a huge region stretching from the Gulf to the former Soviet Union countries and the Indian subcontinent, also encompassing the non-resident Indian markets of east and north-east Africa,” he says.

As well as banking locals domiciled in this region, Mr Mirabaud sees increasing demand from international clients visiting or living in the Middle East with businesses based there and is convinced that his bank’s operation in the Dubai International Financial Centre (DIFC) is a major selling point compared to rivals.

“We chose to go there rather than Asia, as we felt we were not equipped at the time for the type of balance sheet leverage and focus on new ideas every month which Asian clients are used to,” he says. “You need tens of millions of US dollars of investment to be successful in Asia.”

A base in Dubai, however, gives his bank a different perspective of strong presence in a highly stable state at the centre of a volatile region. “The Arab Spring played in favour of Dubai,” he says. “Every time there is a problem in the region, people are moving there.”

Despite the success of this Middle Eastern strategy, Mr Mirabaud has other matters on his mind. Frustratingly there has been a lack of snow in his beloved south-eastern Swiss village of Verbier, leading to a poor skiing season in his mountain bolthole. But there are also the longer-lasting effects of a changing Swiss banking model and the UK’s unexpected Brexit decision to think about.

Representing the sixth generation of the Mirabaud family, he believes Swiss private banking remains a healthy industry, despite the “change of paradigm” it has experienced over the last 10 years.

A core service based on opening secretive accounts in Switzerland for foreign-domiciled clients is no longer acceptable in the aftermath of the financial crisis, says Mr Mirabaud, with a new, transparent business model now imposed by global authorities in the US and OECD.

“All our clients are now tax compliant, they can no longer hide their assets behind the banks,” says Mr Mirabaud, with the exchange of information rules between several European states already forbidding such subterfuge and 80 more agreements to be signed next year.

The consequences for Switzerland is that the financial centre has become smaller, because it has lost assets, but has readjusted well.

While he is in favour of this move to transparency, Mr Mirabaud also sounds a note of caution. “We have to be sure there is a level playing field so that financial centres such as Singapore, Hong Kong and Dubai all behave the same and that data is used properly.”

His biggest fear for clients is that restrictive regimes such as Russia and Saudi Arabia demand financial information from Switzerland and then use it not for tax, but more nefarious purposes to put pressure on politically-exposed individuals and their families.

But it is the American exchange of information regime which he picks out for particular attention. “Under the US Fatca system, there is a one-way exchange of information. It’s a case of you exchange with them, but they don’t exchange with anybody else. The OECD has no leverage there as the US won’t listen to them. Increasingly, some Latin American clients are leaving Switzerland in order to hide in the US.”

Switzerland’s financial centre remains “very attractive,” believes Mr Mirabaud, but the main problems are to do with ability to market services to certain jurisdictions.

“Our biggest challenge is not being part of the EU,” he says. “We have no agreement about the free movement of services, so no access to the market, unless we have a bilateral agreement with each major economy.

“Europe is not our only market, but the consequences of this are that most Swiss bankers have had to come closer to their clients in France, Spain or the UK. The best way to do this is to have their HQ in Luxembourg.”

While Swiss bankers understand that Brexit has caused them problems, with the Swiss financial services marketing deals now very much on the EU backburner, this is “not the only problem we have,” adds Mr Mirabaud.

Rather the main problem is an often lukewarm relationship between Switzerland and its EU neighbours. “The Swiss vision of the EU, even before Brexit, has not been so positive,” with negotiations stalling because Switzerland wanted to limit free movement of workers from the EU in 2014.

“The question to our politicians and people should be: ‘Do you want to create jobs in Switzerland or outside?’ If we cannot secure market access, then our banks will have to put people in the UK, Paris and Luxembourg, which ends up expensive and not good for Switzerland. During the last three years, our banks have increased their workforce in Switzerland by 6 per cent and outside Switzerland by 66 per cent.”

As head of the Swiss Private Bankers’ Association, Mr Mirabaud quotes highly concerning statistics to his country’s industry, that during 2016 alone, Swiss banks “destroyed” 3,000 jobs locally and created 6,000 jobs abroad.

Back office jobs are increasingly moving to Eastern Europe and the situation could get much worse once technology and even front office workers are recruited in those countries with top class English language skills and easy transport access to the rest of Europe.

He maintains that highly-paid relationship managers will not follow, even though the threat is clearly there, with Swiss costs much higher than Warsaw. “RMs are high quality people, so you can’t just put them in Poland as they need to be on the ground. You can’t sit in Warsaw and develop a relationship with UK clients.” 

Key to re-assessments which his management team are examining are digitisation developments. “Fintech is very much on our radar. Today our tools are dynamic and modern. But when I joined in 1993, there was not a single PC in sight – that was the state of our nation,” recalls Mr Mirabaud.

Robo-advice services have their place for clients with between $50,000 and $1m to invest, he believes, but for larger amounts, where wealth needs become more important, the ‘human factor’ prevails. “I am very much convinced that this business cannot be managed by a machine,” he says, though stressing that collaboration with new fintech firms is vital for the future of private banking.

Mr Mirabaud is convinced that the business models of the very largest Swiss banks, UBS and Credit Suisse, combining investment banking with wealth management, will survive for the long-term, as will the tier below, including Julius Baer, Pictet and Vontobel, provided they acknowledge the “change of paradigm” and ensure that only top-quality clients are given access to private banking services. “Julius Baer has got the Merrill Lynch business and UBP bought [operations from] ABN Amro and Coutts, so Swiss banks are taking over foreign brands of other banks, which underlines the solidity of the model,” he says.

These developments also show the international reach of Swiss banks, he says, with his own institution’s client base split almost equally three ways between Switzerland, Western Europe and a range of markets across Eastern Europe, the Middle East and Latin America. He is in the bank’s office in Dubai very regularly to monitor clients across the highly prioritised Middle East region, but less frequently in Moscow and capitals of some other developing countries. “Russians and East Europeans are typically travelling a lot, so they are often in Monaco or London. They mainly come to you.”

He is a strong believer in growing the London business, for citizens, resident non-domiciled individuals and foreign investors with UK business interests. “London is an incredible tax haven, which attracts a lot of people. We must be in banking, wealth management and asset management and also try and sell investment products to local institutions,” says Mr Mirabaud.

The story is different across much of Europe, where bankers must be closer to their clients, with more of an onshore-style service, he adds.

Despite the far-reaching and challenging re-organisations to the British economy which Brexit will trigger, entrepreneurs will continue to flourish in the UK, he believes. “The British are very smart. They will find ways to compensate for what they lose by being outside Europe.”