Vontobel CEO Says Banks Cannot Shun US Despite Compliance Fears

Tom Burroughes

16 September 2013

While some of the world’s non-US banks have ceased catering to American clients because of heavy compliance costs, it makes little sense for firms to turn their backs on the world’s biggest economy, argues the chief executive of Vontobel, the Swiss private bank.

While firms such as Deutsche Bank and HSBC no longer serve expat Americans, concerned by the burden of complying with the recently enacted FATCA Act, Dr Zeno Staub said it was hard for foreign financial institutions to give the US market the cold shoulder.

“The US is too big, too important and too wealthy. The US accounts for 40 per cent of the global seed pool,” he said, and added that such predominance cannot be ignored. Dr Staub was speaking to journalists at a briefing in London on his firm’s developments.

Dr Staub was asked whether US clients are more trouble than they are worth due to issues such as FATCA. “We still bring skills to the table that are not commonplace in the US. These clients, beyond tax, have reasons to diversify assets,” he responded. “The US market offers decent margins. There is a willingness there to pay for first-class advice.”

Vontobel has had a presence in the US since the 1980s; in total, the Swiss firm oversees a total of SFr110 billion assets under management and about SFr22.9 billion of that sum is managed for US clients . The firm manages a total of SFr160 billion, including custody assets and structured products.

Dr Staub spoke shortly after the Swiss and US governments agreed a sweeping deal to draw a line under a dispute between the nations about Americans’ use of offshore Swiss bank accounts. Swiss banks fall into a number of different categories depending on whether they are deemed to be at fault or not. Some 14 Swiss banks are understood to be under investigation.

Shift

Swiss banks, which account for about 12 per cent of the Alpine state’s gross domestic product, have been under pressure since before the 2008 financial crisis due to their account secrecy rules, although moves to break down such secrecy have intensified in the past five years.

Dr Staub said the Swiss banking industry needed to realise – and it was doing so – that the world has changed.

“In the old days, which started to end about 10 to 12 years ago, it was a very awkward business model. You could only really deploy capital as a client into Geneva or Zurich. It was a very benign business model….there were very liberal investment rules. That environment has come under increasing pressure. It was fully foreseen by us that this would happen,” he said.

He pointed out that Vontobel had been quick to see change coming: It moved to put German clients on fully tax-compliant accounts as early as 2000.

Despite the tighter rules and pressures on tax evasion, money still flows to the country because of its three main pillars: advice and service; investment performance, and a stable legal framework and protection of property rights, Dr Staub said. “We are still confident that Switzerland is a great place to do business in because of the excellence of the three pillars,” he said.

Vontobel intends to grow and management is pleased at progress lately, he continued. Vontobel has a 2014 target to have SFr175 billion of total AuM; it has been growing AuM by around 10 per cent per annum. “That’s okay for us,” Dr Staub said.

An area of growth for Switzerland is investment management, which is becoming more important. There are about SFr600-800 billion of institutional assets under management in the country . Vontobel has been aware of this issue for decades, he said. “We were always more of an institutional house and we started doing asset management in the early 80s,” Dr Staub said.

He was asked about the business generated by serving independent wealth managers. .

Dr Staub said some independent wealth managers were so small – only two or three people with under SFr100 million of assets, that some consolidation is likely.

“We would expect the market for the banks serving these people to heavily consolidate. What they want is a global execution platform, compliance support, custody, and other things – you can scale all that. He said there are as many as 3,000 IWMs, currently served by around 320 banks. The latter number is likely to fall significantly, he said.

Vontobel earns about 3 per cent of total revenue serving IWMs and this has risen by around 20 per cent per year in recent years, he said.

As the Swiss market has witnessed, consolidation through M&A and other routes is happening and more is likely, he said, but Dr Staub said such action will not be the only way the industry changes. Some firms might choose to shed their bank licences and work as asset managers instead.

Dr Staub said are opportunities for Vontobel to pick up teams of RMs and other assets in a consolidating market. Next year will see more of a focus by the firm on organic growth, he said.