Rattled Swiss private banks turn page on past

Switzerland's exclusive private banking sector is turning the page on the business model that crafted its fortune and reputation, amid tougher international regulations and a crackdown on tax cheats, insiders say.

Rattled Swiss private banks turn page on past
Photo: AFP

Amid international pressure on Swiss banks to make amends for past practices of allowing and even helping foreign nationals hide assets from the taxman at home, the sector has been undergoing a seismic shift and is even bracing to give up its cherished tradition of banking secrecy.

In this climate, there is no point for the tradition-laden private banking sector to "hang onto an idealised but now reevaluated past," said Christophe Gloor, the head of the Association of Swiss Private Banks (ASPB), who also heads the La Roche & Co private bank.

Instead, he told bankers gathered for ASPB's general assembly in Basel on Friday, Switzerland's private banks — many of them still controlled by the families that founded them up to two centuries ago — should face the new reality "to better build the future."

Switzerland agreed a few weeks ago to phase out its long tradition of banking secrecy over the next two years, caving to pressure from foreign governments who since the international financial crisis kicked in in 2008 have become increasingly eager to lay their hands on hidden assets.

Switzerland reluctantly agreed to opening the way to an automatic exchange of banking data, laying waste to its long-held conviction that accounts should
be taxed but that all information about them should remain confidential.

"It is time to recognise that, unlike the United States, Switzerland does not have the capacity to impose its views on the rest of the world, even if they are based on reasonable concepts," Gloor said Friday.

The wealthy Alpine nation has reached deals with the United States aimed at ending a dispute over charges Swiss banks in the past helped US citizens hide billions of dollars from tax authorities.

More than a dozen Swiss banks have been under criminal investigation by the US Justice Department, including the country's second largest bank Credit Suisse, which was slapped with a hefty $2.6-billion fine last month.

The country's largest private bank, Julius Baer, is also on that list.

Many other private banks have meanwhile signed up to a programme where they acknowledge they may have unwittingly helped US citizens dodge taxes and say they will agree pay large fines in exchange for avoiding criminal prosecution.

France has also launched a programme to flush out undisclosed French funds, which French Finance Minister Michel Sapin maintains allowed Paris to rake in an extra €10 billion last year alone.

Some 23,000 French citizens have come forward under that programme since June 2013 to fess up to undeclared accounts abroad — 80 percent of them in Switzerland.

Swiss bankers meanwhile acknowledge they manage far fewer funds inside Switzerland today than they did in the past, since clients' assets are now being taxed and are therefore shrinking.

Bankers are therefore instead turning their sights abroad, where most institutions are expanding rapidly.

"Members of our association are relentlessly internationalising," Gloor said Friday.

Swiss banks provide, directly and indirectly, some 260,000 jobs in the wealthy Alpine nation.

But while Swiss private banks have seen their staff sizes swell six percent inside Switzerland over the past six years, their employee base abroad has ballooned 67 percent to nearly 900 in total.

"This tendency is strengthening," Gloor said.

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Reader question: Can a foreign national obtain a loan in Switzerland and under what conditions?

When it comes to borrowing money from a Swiss bank, nationality may play a role in some cases, but not in others. This is what you should know about this process.

Reader question: Can a foreign national obtain a loan in Switzerland and under what conditions?
Getting a losn in Switzerland is subject to many conditions. Photo by Claudio Schwarz/Unsplash

Like almost everything in Switzerland, consumer loans are regulated by legislation, in this case the Consumer Credit Act.

It defines a loan as between 550 and 80,000 francs, “offered by commercial providers of financial services”. Lower or higher amounts are not subject to the Consumer Credit Act.

As is the case in many other countries, Swiss banks have strict criteria about who they lend money to. After all, no financial institution wants to deal with people who are not creditworthy.

Whether or not a foreign national can borrow money from a bank depends on their permanent place of residence and permit status.

As a rule, Swiss lenders don’t give loans to non-residents. So if you reside abroad, there is practically no chance that a bank in Switzerland will lend you money.

However, some financial institutions make exceptions for cross-border workers. If you fall under this category, you can use this interactive tool, select “ Permit G” under “Residence Permit” and see what, if any, options, there are.

READ MORE: EXPLAINED: What cross-border workers should know about taxation in Switzerland

If you are a foreign national but have a permanent residence status (Permit C), your chances of getting a loan are practically the same as those of Swiss citizens — provided, of course, that you meet all the requirements set by lenders (see below).

What about other permit holders?

If you have a B Permit, you might be approved for a loan, depending on how long you have had this permit — obviously, the longer the better.

However, “you may be offered a higher interest rate or a limited loan amount. This is because of the statistically higher probability that you will return to your home country. Some lenders require the loan to be repaid by the time the B permit expires”, according to consumer comparison site 

Holders of other, temporary or conditional permits are not accepted.

READ MORE: ‘A feeling of belonging’: What it’s like to become Swiss

What conditions — other than residence permit — should you fill to be considered for a loan?

You must be at least 18 years of age, though additional restrictions may apply to applicants under 25 — for instance, a higher interest rate or a limited loan amount. That’s because “lenders are generally more cautious with young applicants as their financial circumstances are usually less settled and the risk of default is deemed to be higher,” Comparis noted.

The same cautious approach applies to pensioners, especially those who have no regular income. The social security payments (AHV/AVS) do not count as income for the purpose of the loan.

There is also other eligibility criteria, based on employment status and salary. People with a regular income have a higher chance of obtaining a loan than those who are self-employed, temporarily employed, work on hourly basis or, logically, unemployed.

Other factors, including your existing debts, are also taken into account in the decision process.

Basically, lenders favour applicants with a stable income and good financial standing, in much the same way as supplemental health insurance carriers prefer young and healthy people.

Keep in mind that if your loan application is rejected, this will be recorded in the database of the  Central Office for Credit Information, making it more difficult, though not impossible, to get a loan in the future.

The same rules do not apply to American citizens

That’s because Swiss and European banks are subjected to US demands to disclose the assets of Americans overseas in order to prevent tax evasion.

As adherence to these requirements is a major headache for the banks and in some cases also violates their country’s privacy laws, financial institutions prefer not to deal with Americans at all, even those who are permanent residents.

If you are a US citizen who also has Swiss nationality, you may have an easier time of it, but could still face hurdles in obtaining loans and other banking services.

There is no immediate relief in sight, although many organisations representing Americans abroad are lobbying in Washington to change the existing legislation.