Report Says Offshore Banks Are On Shaky Ground

Amanda Banks, Tax-news.com, London

28 March 2001

According to a report released this week by Moody's, the rating agency, the stability of some offshore banks may come under threat as they are increasingly seen as having less appeal than onshore banks among many high net worth individuals.

The findings of the report, entitled "Rapidly Evolving Dynamics of Today's Private Banking Industry", revealed that the private banking industry worldwide is facing a number of dynamic challenges and opportunities as a result of shifts in the investment behaviour of its clientele in conjunction with a steady increase in global wealth amongh high net worth individuals.

According to a study by Gemini consulting there are around 7 million individuals across the globe with investable assets worth at least US$1 million and wealth worldwide is predicted to increase by 12 per cent in the next five years. But Moody's says that not all private banks will have positioned themselves to take advantage of such wealth.

Moody's says the recent adverse publicity on offshore banking centres from several international bodies such as the FATF has damaged the reputation of many private banks with criticisms over their tax environments and anti-money laundering policies. According to the authors of the report, Alexandra Sleator and Samuel Theodore, the profile of private banking clients has evolved with a 'greater variety of social and economic backgrounds.' They argue that clients are shifting from a 'passive' attitude to an 'active' one as they claim: 'Less concerned with conservative management and fiscal optimisation, the 'active' clients focus more on performance, quality of advice, transparency of process and reporting, product range, and capacity for innovation.'

A further element compounding clients' decisions to look to onshore banks as an alternative is the recent improvement in the quality of private banking services and regulatory developments in the EU and US fiscal frameworks. 'The first disincentive for (affluent individuals) to place their assets offshore is simply the trouble of doing business abroad when the quality of locally available private banking services is now on par ... offshore private banks face a conundrum because they need to both continue servicing their long-standing customers who favour a high fiscal content as well as establish themselves as credible financial managers for the new (wealthy),' say the report's authors.

The report rated 12 offshore and onshore private banks with the BMB Investment Bank of Bahrain and Bank of Butterfield & Son of Bermuda, Banco General SA of Panama and Banco Safra of Brazil coming off worse due to their comparative lack of financial strength. Those with the highest scores were HSBC, Republic Bank of Switzerland, LGT Bank in Liechtenstein AG, the Banque Generale du Luxemborg, and the Dexia Banque Internationale a` Luxemborg.

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