Let’s face reality. Swiss banking is dead. It’s a brisk day here in Geneva with highs in the mid 40’s and a strong breeze coming off the lake. I spent the day ringing in the New Year with a group of investment advisers and bankers on Rue de Rhone, all of whom are typically Swiss about what’s happening to their country.
With Swiss banking privacy in the rear view mirror, banks are struggling to find their place. In days gone by, they were able to charge high fees in exchange for their integrity and a history of defending their client’s rights. Now, after rolling over for the Americans, Swiss banking is in a tailspin.
But the Swiss are pressing on. To a man, their attitude is that, while this is a permanent contraction, business will go on in one form or another. Those who can adapt to a new world order will succeed, and those who can’t will be left behind. Life changes and goes on.
Switzerland’s biggest banks, UBS and Credit Suisse, have shed 7,000 jobs and the downsizing is expected to continue. In addition to losing its allure, an overpriced Swiss Franc, a weak Euro, and other economic woes have hit this small country of nearly 8 million hard.
And those who still have their jobs are looking at significant pay and bonus cuts, as bank profits have fallen sharply. Because of a significant decrease in international business, combined with higher regulatory and other costs, salaries and all types of compensation are lower. Lower margin as forced to compete on price and not on privacy and protection.
In addition to lost respect and business affecting all Swiss banks, UBS has been singled out and smashed time and time again by U.S. authorities. In 2009, UBS paid the U.S. tax man $790 million and the U.S. SEC $200 million to avoid criminal prosecution, and gave up info on 17,000 accounts, which precipitated the current mess. Then, in May of 2011, UBS came up with another $160 million for the SEC. With cash strapped agencies smelling blood in the water, regulators are currently suing UBS for $1 billion in damages related to the U.S. mortgage crisis.
Not wanting to kill the cash cow, the Justice Department has given UBS conditional immunity on the LIBOR rate fixing case they are planning. Conditional immunity indicates that UBS confessed and gave evidence against others in the pending investigation.
A corporation can avoid criminal conviction and fines for antitrust crimes “by being the first to confess participation in a criminal antitrust violation, fully cooperating with the division, and meeting other specified conditions,” according to the Justice Department.
While the Swiss may be stoic, I believe this new world order will continue for the foreseeable future and that Switzerland as a world financial center is done. When banking secrecy was torn asunder, Switzerland lost its competitive advantage. Why hold money in Switzerland over Luxembourg, Singapore, or smaller and more competitive nations such as Andorra? The Americans have succeeded in doing what even World War II could not…turn Switzerland in to just another pretty tourist destination.