Traditional Swiss Banks Take The Lion's Share

by Ulrika Lomas, Tax-News.com, Brussels

25 June 2001

Is the Swiss banking industry losing its edge? Many fear that the country, which is at present estimated to hold one third of the private money managed offshore, is one of the jurisdictions most at risk from the changing dynamics of the international private banking industry. It is no longer the only country with a strong currency and an absence of exchange controls, and recent international pressure to tighten up on tax evasion and money laundering means that its banking secrecy laws just ain't what they used to be. UBS and Credit Suisse, two of Switzerland's largest banks only increased their assets under management by a combined SFr20 billion last year.

However, if you were to ask the smaller, more traditional 'boutique banks' whether they thought that the country was falling behind in the offshore private banking race, they would probably laugh in your face. Or maybe just give a genteel snicker. Whilst all over the world, financial institutions have been pruning their workforces, a survey of the 17 most traditional Swiss banks conducted recently found that they had collectively increased staff by over 20% over the last year. 'Thirty years ago our senior partner questioned whether a private partnership structure could survive with over 200 people,' mused Thierry Lombard, Lombard Odier's senior partner. 'It is now seven times as large.'

In a private partnership structure, the partners carry unlimited liability for their bank's losses. As a result, they give virtually no information about their financial affairs. However, the latest figures released by the Swiss National Bank show that their collective profits rose by nearly 50% in 2000, raising questions about whether there are genuine economies of scale in private banking. Large private banks such as Julius Baer and Vontobel (which recently sacked three of its top executives after a failed attempt to set up a pan-European internet bank), have long since given up on their private partnership structures, needing to tap the capital markets in order to finance their rapid growth.

However, M. Lombard remains convinced that even in a period of rapid growth and change in the offshore private banking world, a private partnership structure is still a workable business model for Lombard Odier. 'We are over-capitalised and do not face any capital constraints, ' he explained.

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