All the signs are that Swiss banks are proving to be resilient in the face of increased competition and regulation.

In a recent interview with WealthBriefing, Pierre Darier managing partner of Geneva-based private bank Lombard Odier Darier Hentsch & Cie and chairman of the Swiss Private Bankers Association claimed that Switzerland will not be adversely affected by new global challenges to its pre-eminent position. Indeed, all the signs are that Swiss banks are proving to be resilient in the face of increased competition and regulation. According to a Swiss Bankers Association report published in January this year based on the most recently available data available from end 2005, Switzerland had a record year, with client holdings in domestic branches at SFr 4.4 trillion ($3.6 trillion) and profits at an all time high. Switzerland is the world’s leader in international offshore private wealth management with a market share of 28 per cent, with Hong Kong and Singapore holding only 4 and 3 per cent of global off-shore assets respectively. Increasingly, however, new offshore jurisdictions are providing genuine low-cost alternatives. As Ted Wilson, consultant for Scorpio Partnership points out, Singapore provides the twin benefits offshoring and an offshore jurisdiction, demonstrated by Credit Suisse’s focus on the city-state as an operations centre. But Swiss banks are rising to the very real challenges raised by alternative offshore jurisdictions. “Swiss banks have undergone a renaissance in the last decade. Once it was enough to keep people’s identity a secret and performance was perhaps not a primary concern. With the increasing scrutiny of offshore banking environments, initiatives like the European withholding tax initiative and increased competition, Swiss banks have been forced to re-examine and re-think the ways in which they operate,” said Mr Wilson. “They are now really capitalising on their strengths and playing to the ‘Swissness’ of what they offer - good reporting, sophisticated investment techniques and a focus on the famous Swiss precision. They have realised that they need to make a better watch, so to speak.” Veit de Maddalena, acting chief executive officer of Rothschild Private Bank and Trust and head of Switzerland agrees: “Swiss private banking has changed considerably in recent years, with many banks investing heavily abroad to build an onshore presence in key markets. The days of staying put and waiting for clients to move their assets to Switzerland are now behind us. Looking forward, Swiss banks will need to add expertise in international wealth management to their reputation for discretion and stability in order to be successful.” And they seem to be doing just that. Swiss banks have in recent years concentrated on expanding internationally in both onshore and offshore destinations. According to the Swiss Bankers Association, in the past decade, investment abroad has increased fivefold and the total of foreign branches has risen by a third to 305 in the five years to 2005. The “Big Two” Swiss banks, UBS and Credit Suisse, are of course very much global firms. UBS is present in all major financial centres worldwide and has offices in 50 countries. Just 35 per cent of its workforce is now based in Switzerland, with the majority in the Americas and 10 per cent in Asia Pacific. In 2005, UBS and Credit Suisse combined had 138 branches abroad, constituting almost half of Swiss banks foreign branches. Inward capital investment into Switzerland has also doubled to SFr29 billion ($24 billion), showing that foreign banks continue to seek to build up their client base in and operations from Switzerland. With much cachet attached to having a business there, and highly skilled staff available, Switzerland is extremely attractive to international wealth management firms. Barclays Wealth has just appointed a new head of its Swiss business, Philippe Sednaoui. Rothschild Private Bank, with 170 employees in Zurich and Geneva, told WealthBriefing recently that its strategy includes bringing together the Swiss and the UK businesses. Increasing regulation such as the European Union Savings Tax Directive also appears to have had limited impact. Ted Wilson said: “Switzerland agreed to abide by the Europe Savings Directive to take the heat off, however the relatively low yields from this arrangement show that there are legitimate ways around it. Whilst it looks good on paper, many high net worth and ultra high net worth individuals can structure their investments in a corporate vehicle which means they are exempt.” James Nason, head of International Communications at the Swiss Bankers Association agrees that the impact has been minimal. “We have seen no radical change in client behaviour. Switzerland was able to help the EU close a potential loophole in its directive so that no EU taxpayer can circumvent the directive simply by using a paying agent in Switzerland and although implementing the EU's withholding tax involved considerable costs and administrative work for banks in Switzerland, bank client confidentiality is preserved.” And whilst today, Swiss secrecy is not sufficient as a sole focus, it is still desirable and the country has proved itself resistant to data leakage. Where there is a criminal aspect however, the Swiss banks have demonstrated that there is a willingness to lift the veil of secrecy. Whilst challenges such as competition, changing client profiles and expectations and increasing regulation will not go away, Swiss banks seem to be willing and able to adapt and continue to up their game to compete. The Swiss Bankers Association recognises that both industry and government responses will be critical in maintaining Switzerland’s competitive edge and helping to sustain the country’s high-growth potential of wealth management activities. “Private banking clients come to Switzerland in search of security, stability, competence, innovative financial products, respect for privacy, a quality service and professional financial advice. It's the complete package that defines banking Swiss-style,” said Mr Nason.