Geneva private banks set to reveal first results

UPDATED — The elite of Swiss private banks on Tuesday began lifting the veil on their books after a radical shift in their business model, amid tougher international regulations and crackdowns on tax dodgers.

Geneva private banks set to reveal first results
Photo: Fabrice Coffrini/AFP

Geneva's Bank Pictet broke with a 209-year-old tradition of keeping its accounts under wraps, announcing a six-month net profit of 203 million francs ($222 million).

Operating income was 975 million francs, operating profit 247.2 million, and assets under management 404 billion francs.
Pictet said that tier one capital ratio — a measure of a bank's own top-notch funds, and a benchmark of stability — was 21.7 percent.
Under global rules, banks must have a ratio of at least 4.5 percent, while Switzerland's regulator requires 7.8 percent.
"Our financial solidity, along with the ability to set our own business strategy without pressure from external shareholders or creditors, go hand in hand with independence of mind, exacting risk management and freedom from the temptations of short term fashion," said Pictet senior managing partner Jacques de Saussure in a statement.
Pictet's results release will be followed on Thursday by Lombard Odier, while Mirabaud and LaRoche are also poised to issue their results.
"All the figures published will be important, even if these banks are not listed," Andreas Venditti, an analyst at Zurich's Vontobel Bank, told AFP.
The revolution in the secretive world of private banking — which caters for the globe's super-wealthy — began in January when Pictet and Lombard Odier ditched their two-century-old statutes.
Previously, their handful of wealthy managing partners were personally responsible for their clients' money.
In other words, if the bank got into trouble, the partners could lose all their assets, not just those they had invested in the operation.
But the increasingly complex nature of global finance made it hard for private bankers to feel safe with a traditional approach that put all their assets on the line as they expanded their operations.
The tougher regulatory environment seen since the global financial crisis, and scandals such as the Madoff fraud case in the United States which rippled across the world's banking sector, were also wake-up calls.
Switzerland's cherished tradition of banking secrecy has meanwhile been battered as governments — notably the United States and European Union — crack down on tax cheats who stash cash abroad.
As a result, the four private banks shifted from their near-unique status and transformed themselves into businesses almost like any other.
They have recast themselves a "corporate partnership", a hybrid status that makes it easier to compare them with fully-listed players such as Credit Suisse and UBS.
It is similar to the "limited company" structure in the British Isles, with its well-known "Ltd." label.
The partners now only risk the funds they have invested in the bank, rather than putting all their personal assets on the line.
Not being listed on the stock exchange, private banks do not have to publish as detailed results as mainstream banks.
For Luc Thevenoz, a law professor at the University of Geneva, the changed business model offers greater protection.
"But the price of that is more transparency," he said.
Seven lower-profile private banks have opted to stick to their traditional operating model, however.

To see Pictet's new financial report, click here

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.


Switzerland’s banks remain among the world’s most secretive

Despite the progress made over the years, the Swiss financial sector continues to be one of the least transparent in the world. But there is good news too.

Switzerland’s banks remain among the world’s most secretive
Switzerland remains one of the world's least transparent nations. Photo AFP

Switzerland is in the third place in the 2020 Financial Secrecy Index released by the non-governmental organisation (NGO) Tax Justice Network (TJN), which rates 133 nations based on their financial transparency.

Two other European countries, Luxembourg and the Netherlands, are also ranked among the top 10 least transparent nations on the TJN’s list.

Despite being in the third place, Switzerland ranks better this year than it did in the previous edition of the Index, which is released every two years — it slipped from the first to third place. The Cayman Islands and the United States took the first and second spots, respectively.

Switzerland reduced its risk of being an offshore haven for tax cheats by 12 percent, “finally improving enough to move off the top of the index”, TJN said. 

READ MORE: Switzerland's strangest taxes – and what happens if you don't pay them

This improvement is mainly due to Switzerland extending its international network for the automatic exchange of customer information to more than 100 countries. 

Also, in a referendum held last year, Swiss voters accepted the Federal Act on Tax Reform and AVS Financing (TRAF). This legislation introduced major changes in the Swiss tax system by ending some preferential tax schemes and replacing them with new regulations which are in line with international standards.

This tax reform prompted the European Union to change Switzerland's status from ‘tax haven' to one which is EU-compliant, removing strict controls on transactions within the EU. 

So why, despite all the reforms, does Switzerland still rank among the world’s least transparent nations?

According to a Swiss NGO Alliance Sud, wealthy people from poor countries can still hide their money here from the tax authorities of their home nations.

Alliance Sud noted that despite the progress made in the past years by Swiss financial institutions, “the fight against tax evasion remains insufficient”.

Switzerland is the world’s biggest centre for managing offshore wealth, with a quarter of global assets invested here.

For years, it has been placed on various lists of tax havens where wealthy foreigners could park their money. Faced with widespread criticism for this practice, Switzerland passed an anti-money laundering law in 1997 and introduced strict regulations against tax evasion.