Europe's banking centres forge new business model
ZURICH, SWITZERLAND -- "Challenge" was the word of the day at a conference in Zurich as top executives, government and regulatory officials and even a prince gathered to discuss the uncertain future of their key banking industries, which have come under intense pressure in recent years.
Bankers are not exactly popular anywhere in the world right now, but those hailing from the European offshore wealth centres of Switzerland, Liechtenstein and Luxembourg have suffered bigger blows.
The banking industries in these small countries are going through an identity crisis. They have been forced to loosen their banking secrecy as governments around the world crack down on tax evaders and those who aid them. In Switzerland, bankers fear for their jobs and, in come cases, cannot travel abroad for fear of arrest. Two teenage children of a Swiss banker were reportedly held and questioned by United States authorities earlier this year.
Now the Swiss, like their counterparts in Liechtenstein and Luxembourg, must forge a new way forward. They recognize they must find a way to toe the line with foreign governments. At the same time, however, they must reorient and defend the banking industries that are so vital to their economies.
"I see not the end of financial centres, but I see through these challenges huge new opportunities for the future," Luc Frieden, the Minister of Finance for Luxembourg, told a sea of dark-suited business and banking types at the NZZ Capital Market Forum yesterday. "We have to accept change. Just defending the past, we will not build the future."
The pace of change in these countries' banking systems has been quick and vast in recent years, and is unlikely to let up. All three countries, for example, agreed in 2009 to adopt OECD standards in which they exchange data with foreign tax authorities working on probes.
But there is still much more work to be done. Nearly a dozen Swiss banks, for example, are under investigation by the U.S. Justice Department. The former president of the Swiss National Bank (SNB), Philipp Hildebrand, recently caused a stir when he predicted banking secrecy will disappear within a decade. Some Swiss are opposed to giving up banking secrecy for an automatic exchange of information.
"The Swiss banking sector needs to embrace a business model based on today's reality of tax-compliant money," said Urs Rohner, chairman of the board of Credit Suisse Group. "It must be clear and credible to the outside world that we don't support tax avoidance ... any business model that rests on different standards in the future will inevitably fail. It's economically stupid and morally unacceptable."
The reorientation of these banks comes at an already difficult time as the financial meltdown of 2008 changed the financial industry worldwide, leading to lower margins and much more regulatory tape.
For inspiration, Mr. Rohner points to the successful turnaround of the Swiss watch industry. The industry was on its last legs in the 1970s. Then along came the cheap and chic Swatch watches and the repositioning of Swiss mechanical-movement watches into luxury items, and the Swiss watch industry was reborn. The Swiss banking industry itself goes back to the 17th century.
"Throughout our history, Swiss banks have managed to draw the appropriate conclusions and change course in time," SNB president Thomas Jordan said at the conference. "I am convinced that the Swiss financial centre will be successful in overcoming the many challenges ahead and that it will remain an important pillar with regards to the wealth of our nation."
The new business model, it appears, will be a mix between the old and new. The strongest selling points now for the wealth management business will be the economic and political stability of Switzerland and the quality of its services, according to industry players. But conditions will get harder, and experts are predicting further consolidation in the Swiss banking sector.
Mr. Rohner suggested some possible areas to expand. The Swiss banks could do more business with the many multinational Swiss companies in their own backyard, he says. They could also offer more services for foundations and philanthropic organizations. He also sees opportunities to expand the commodities trading business here, and the Swiss can again cash in on their "safe haven" status in the data storage and processing business.
In Liechtenstein, the banks looked to Asia for new sources of growth, according to Prince Max von und zu Liechtenstein. His family's bank, LGT Group, has met with success there because people appreciate the family ties.