People Moves

Rothschild Bank In Zurich Says No Dividend To Owners Amid US Tax Programme Cost

Tom Burroughes, Group Editor, London, 4 August 2014

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Zurich-based Rothschild Bank AG will not pay owners a dividend this year because of a loss related to its co-operation with a US tax evasion crackdown.

Rothschild Bank AG, the Swiss bank, will not pay its owners a dividend this year, because of a loss sustained after it decided to co-operate with a US tax evasion crackdown.

The bank, based in Zurich and part of the Rothschild Group of wealth management and financial businesses, reportedly said it logged a net loss of SFr9.2 million (about $10.1 million) in 2013, after taking an undisclosed amount of legal provisions, including those related in the US Department of Justice programme for Swiss-based banks. (This business should not be conflated with the Edmond de Rothschild group, a separate branch of the Rothschild dynasty.)

"Rothschild Bank has absorbed these one-off costs and maintains a very strong Tier-1 capital ratio of 37 per cent under the new Basel III regulation. As a result of the exceptional costs relating to tax and regulation, the Board of Directors decided to forgo a dividend payment in 2014 to help maintain the Group’s strong capital position. This reflects the commitment of the shareholders to the Bank and the implementation of the long-term strategy,"  Baron Eric de Rothschild, chairman, said. "In the year under review, we have made provisions for all costs anticipated to arise as part of this program and expect to conclude the matter during the 2014/2015 financial year." 

Out of around 300 Swiss-based banks, about a third have signed up to the US-Swiss programme, which gives firms the option of stating whether they have any potential risk, or not, of holding US clients with undeclared accounts. Unusually, last week UK-listed Barclays announced that having reviewed its options, that two of its entities in Switzerland will not take part in the programme. The US-Swiss pact was originally signed last August.

Last week, it was reported that around 80 of the 106 Swiss banks which have struck a deal with the US Government on tax evasion could face smaller fines than they had originally feared if they cooperate more fully. A report by Swiss publication Finanz und Wirtschaft has said those banks with some exposure to US clients evading taxes could pay fines 20 to 50 per cent lower than initially expected if they help US prosecutors.

On a more positive note, de Rothschild said of the bank's performance: "We increased our assets under management to SFr22.1 billion (+9.1 per cent), with growth coming predominantly from our domestic businesses in Germany and the UK. Despite some international clients repatriating their assets away from our Swiss business, our core business remains strong." 

Fine print

The US-Swiss programme has been designed to draw a line under a long-standing row between the countries about how Swiss banks have held undeclared funds for wealthy US citizens. Some in the Swiss industry have complained to this publication that the US pressure is hypocritical and oppressive, given that within the US, there are pockets of secretive financial territory, such as the state of Delaware. The stakes are large: financial services, in total, account for about 12 per cent of Swiss GDP. 

The Swiss government has said the DoJ is open to all Swiss banks, excluding those banks which are the target of criminal investigations by the Department of Justice (also known as category 1). Banks in category 2 - which have good reasons to believe that they have violated US tax law - may request a non-prosecution agreement from the US authorities up to 31 December, 2014 at the latest. They must then supply the US authorities with information on their cross-border relations, particularly leaver lists, but not the names of clients, the government said.

Institutions in category 2 must also pay a fine, the amount of which will be in relation to the volume of untaxed US assets they hold and the date on which the accounts were opened. The fines amount to 20 per cent for accounts which existed on 1 August, 2008, and 30 per cent for accounts opened between 1 August, 2008, and 28 February, 2009. If a bank opened an account with untaxed US assets after February 28, 2009, the fine will be 50 per cent. The statement added that banks which believe that they have not violated US tax law (category 3) and those whose business is local in nature (category 4) can report to the US authorities between 1 July, 2014, and 31 October, 2014, at the latest to request a non-target letter.

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