Financial Realpolitik

The entire Swiss wealth management sector risks having to pay a heavy price for UBS’s fling with the United States. This is illustrated by the clear downturn in the stocks of private Swiss banks – echoing UBS – such as Julius Baer and Sarasin. Having taken the largest Swiss bank under its wings, Washington demanded the ultimate ransom: banking secrecy. By doing so, the entire system of cross-border assets has been weakened, thus imperiling a good part of the 1,100 billion francs managed in Switzerland on behalf of private foreign clients. Thus, the American precedent risks infecting Switzerland’s leading market – that of the great European fortunes. According to the Bundesbank, Switzerland manages 28 percent of the 750 billion francs of non-declared German assets. Since, in reality, American clients represent a very marginal portion of the Geneva, Zurich and Lugano markets, everything is at stake there.

Now non-declared Europeans – be they German, French or Italian – must ask themselves: How long will their Swiss accounts sleep peacefully? From now on they will be aware that a hostile government – such as Washington with UBS and Berlin with Vaduz – can brand the most powerful bank as dishonest, banking secrecy or not. Never has the United States been so hard on banks; those same banks that – from both sides of the Atlantic – have paid out more than $7 trillion to pull them out of the financial crisis and that now desperately need the billions hidden from the tax office.

Today, private Swiss banks need to reflect on the future. In UBS’s case, its minimum undeclared assets are estimated at 150 billion francs.

But before Berne criminalizes fiscal evasion, it must be made to raise its head and speak face to face with the other centers controlling the gray money market: London (16 percent of the market) and, especially, the United States and the Caribbean (26 percent), which trails Switzerland (31 percent). Curiously, these direct rivals turn out to be the most aggressive towards the alpine state. Berne must learn how to enter the era of financial realpolitik.