Swiss banks at crossroads as secrecy goes up in smoke

The institutions that helped create the world’s largest offshore tax haven are dramatically rethinking their business models in a bid to survive as Switzerland’s long-cherished banking secrecy practices evaporate. Under heavy pressure from international regulators looking to root out shady practices after the global financial crisis, the wealthy Alpine nation has agreed to phase out its long tradition of banking secrecy and open the way to the automatic exchange of bank data. As suspicion of the offshore banking model that long served as a cash-cow for Swiss institutions grows, bankers are shifting to managing clients’ assets inside the countries where they reside. Industry giants like UBS and Credit Suisse will weather the storm, but a number of smaller banks are under threat, observers say.

It must be expected that … a number of institutions in the Swiss banking centre will shut their doors or will be acquired.

Swiss Bankers Association

After analysing the annual reports of 94 private banks in Switzerland, KPMG and Switzerland’s University of St. Gallen found more than one third were in the red. And more than a dozen Swiss banks have been placed under criminal investigation by the US Justice Department, with some already hit by crippling penalties. Credit Suisse swung to a loss in the second quarter after it was slapped with a hefty $2.6-billion fine. Many others have signed up to a scheme where they acknowledge they may have unwittingly helped US citizens dodge taxes and agree to pay large fines to avoid criminal prosecution. In a sign of the changing times, three ultra-discrete Swiss private banks – Pictet, Lombard Odier and Mirabaud – late last month published their first results since they were founded some 200 years ago.

A lot of banks, especially those of a certain size, are looking forward to positioning themselves on the future private banking model.

Martin Schilling, head of financial services in Switzerland at PwC

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