Monday, November 29, 1999

ANALYSIS - Swiss banks win rich clients fleeing euro crisis

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The euro zone crisis is helping Swiss private bankers win assets from wealthy clients seeking the country's stability more than its banking secrecy, often used in the past to hide cash from the taxman.Switzerland's status of non-European Union member, together with the allure of the Swiss franc which is at record highs against the euro, are an irresistible mix for worried euro zone residents."Now there is a big sense of insecurity among clients and (many) are looking for safe havens," said Gerhard Mueller, chief executive of private bank RBS Coutts, a division of Royal Bank of Scotland . "We have seen an inflow of assets not only from Greece but also from other countries."Demand for francs as a safe haven has been strong enough to prompt the Swiss central bank to intervene in currency markets to suppress its value, which threatens to harm Switzerland's export competitiveness.But for private bankers the real novelty is that the money pouring in is fully declared, a blessing for a country -- home to $2 trillion of global offshore wealth, according to a recent report from Boston Consulting Group -- trying to turn the page on past complacency to foreign tax evasion."We do see money fully declared coming into Switzerland and out of euro zone banks," a top executive at a large Swiss private bank said on condition of anonymity. "Most will go into euro accounts, but some of it is converted into francs."The secretive nature of Swiss banks means there is no data to back up such anecdotal evidence, but the trend -- which could be significant for Credit Suisse and UBS in second-quarter numbers due next month -- was confirmed by bankers at smaller private banks."We are seeing inflows of declared money from the euro zone," said one of the partners of a small private bank that serves mainly German clients. "Many have converted the euros into francs and switched out of equities."CASH STILL KINGWealthy clients who moved out of complex products during the credit crisis remain reluctant to abandon cash while turmoil continues in the euro zone.Private bankers say clients are keeping about 30 percent of their savings in cash while they try to figure out whether Greece's debt woes will spread further into the euro zone.Yet, cash cannot save a person's lifetime savings from erosion if private bankers cannot deliver above-inflation returns."I'd love to push them (clients) back into more equities," the top banking executive said. "But for the whole of this year we will just see a large cash component."On top of shying away from structured products and equities, private bankers said the crisis had made rich clients wary even of sovereign debt, a traditional source of stable returns."(The crisis) has certainly increased the risk awareness of clients. Previously they thought nothing would happen with sovereign bonds," said Samir Raslan, a regional head at Citi Private Bank based in Geneva.Gold is however still very much in favour, not only among European customers, said Mueller, who noted the longest queue he saw at the Dubai airport shopping area during a recent trip was at a counter selling gold bars.In this unstable environment, clients are happy to do no more than conserve capital and discussions between financial advisors and their clients are tending to focus on the best way to avoid asset shrinkage rather than on promised returns."The most outspoken desire is for capital protected investments," said Mueller. "Everybody is a bit shy in terms of ... investments that are longer than a year."(Editing by David Holmes)

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