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  • Swiss chocolates, Swiss chocolates. Ferrero Rocher, are they Swiss?

  • No, no. Ah these ones, Lindor, yeah, he'll love these

  • Swiss banks used to be like Swiss chocolatesthe envy

  • of the industry. They were the gold standard for private

  • bankingbut since the 1990s they've struggled

  •  This chart shows just how much things have changed.

  • In 1996, there were 403  banks in Switzerland

  • By 2019, 157 — well over a third — were gone

  •  Sowhat's going on here?

  • Have Swiss banks lost their shine

  • Hi Geoff. Hi Tom

  • How are youWe're set up over here

  • I've brought you some Swiss chocolates because

  • I know you haven't been to Switzerland for more than a

  • yearand I wanted to bring a little bit of Switzerland to you

  • But in returnyou've got to talk to us about Swiss banks

  • Squawk Box Europe anchor Geoff Cutmore has interviewed 

  • the CEO's of Switzerland's  two biggest banks for more

  • than 20 years. I wanted to use his experience and

  • insight to learn how the industry has changed

  •  Swiss banking has changed incredibly over recent decades

  • but in the last ten years, I think you

  • can see that shift has accelerated

  • The U.S. has been pivotal because of the

  • financial and economic pressure that they've been

  • able to bring to bear on not only the Swiss government

  • but also the Swiss banks per se

  •  Back in 2010, the U.S.  Government signed a new

  • jobs billwhich included a section called the 

  • Foreign Account Tax Compliance Act

  •  It required American citizens and businesses to reveal their

  • foreign assetswhich would then be subject to taxes

  • To make sure they actually did thisforeign financial

  • institutions had to share  details of accounts held

  • by Americans. If they didn't,  they'd face a 30% tax on all 

  • payments originating  from the U.S. 

  • This wasproblem for  Swiss bankswhich had

  • reputation for secrecyBefore this, wealthy

  • individuals from all over the world could stash their

  • money into Swiss bank accounts with total anonymity

  • TraditionallySwitzerland used to be one of those places where

  • the banks kept your information very secret. They didn't share

  • information with other governmentsand that

  • was ultimately part of the Swiss banking model which

  • made it incredibly successful.

  • Back in 1934, the Swiss government passed a

  • banking secrecy act that  ultimately made it an offense

  • for Swiss banks to reveal information about clients

  • to foreign governments, and that in a way sowed

  • the seeds of massive growth in the Swiss banking system.

  • Some of that history is very chequered.

  • The Nazis maybe hiding gold in Swiss bank vaultsAfrican

  • dictators and despots that have syphoned off state funds.

  • That money has found its  way into the Swiss banks

  • The Swiss for their part would probably hold up

  • their hands and say,  “Look, you know we 

  • can't be responsible for where the money comes from.” 

  • But that answer is not good enough anymore

  • In 2007, a whistle-blower from Switzerland's largest bank 

  • UBS exposed to U.S.  authorities the degree

  • to which Swiss banks were helping American

  • clients sidestep  tax collectors

  • It was a revelation that the authorities in the

  • United States could not  ignoreand they brought

  • it immediately to the door of UBS and to the other

  • Swiss banks that had U.S.  citizens accounts that were

  • clearly being used for  nefarious purposes.

  • That resulted in years of litigation between the Swiss

  • banks and the U.S.  authorities which 

  • ultimately resulted in billions of dollarsworth 

  • of fines being paid out.

  • 85 Swiss banks paid more than $5.5 billion in penalties

  • but Switzerland's two biggest banks, paid the lion's share.

  • UBS settled for $780 million  in 2009, while Credit Suisse

  • was fined a whopping $2.6 billion in 2014.

  • As regulators paid more attention to tax compliance,

  • Switzerland's share of global asset management fell from

  • around 9% in 2004 to  slightly above 4% in 2009.

  • What's moreis the Swiss government's decision to

  • exchange bank information with the U.S. opened the

  • door for EU member states  to begin their own judicial

  • investigationsThose  resulted in further large 

  • out-of-court settlements.

  • How did UBS and Credit Suisse manage these big

  • pay-outsand what did it do to the direction

  • of their  business?

  • Ultimatelythey just had to pay the finesbut the

  • consequences obviously has been a significant hit

  • to earnings and the shareholders don't 

  • like that and the management don't 

  • like thatSowhere the banks have gone next is 

  • they've had to go out and try and find new markets,

  • new opportunities and as you look at the world at the

  • momentthere is one clear area where the opportunity

  • set is growing. That is in the emerging markets of Asia,

  • particularly where there is a growing middle class that

  • has savings that need to be managed.

  • When you exclude China from the mixSwiss banks 

  • Credit Suisse, UBS and Julius Baer are among 

  • Asia's five biggest wealth managers.

  • In AsiaSingapore and Hong Kong's banking laws have

  • propelled their status as  offshore financial centers

  • According to the Financial Secrecy Index, they now fall 

  • right behind the Cayman Islands, United States

  • and of course, Switzerland

  • Between 2009 and 2014, at the height of the tax

  • compliance crackdownnet new assets managed 

  • in Singapore grew by $40  billion and $285 billion in

  • Hong KongIn the same period, Switzerland

  • experienced an outflow of $135 billion

  • The Swiss government would now say that they

  • are a lot more open. In factmore open than they have

  • been for decadesFINMA the regulator would probably also 

  • say that the focus is now very much on Switzerland 

  • operating a globally transparent information exchange

  • But has Switzerland really cleaned up its act?

  • The Panama Papers leak in 2016 revealed that 

  • Switzerland's two biggest banks were among the top 

  • ten banks using offshore accounts to

  • help their clients hide their wealth

  • The problem is that I think a lot of critics would say that

  • the Swiss have been very slow in opening up their

  • banking sector, that there is still too much secrecy,

  • that the process for getting that information is a little

  • too slow and a little too onerous

  • Toward the end of 2018, Switzerland began

  • automatically sharing client data through a tax transparency

  • forum under the Organisation for Economic Co-operation and

  • DevelopmentHoweverless |than 12 months laterSwiss 

  • banking was embroiled in yet another scandal.

  • Credit Suisse's CEO was forced to resign following allegations 

  • that the bank had spied on a former executive.

  • The issue for the markets I think at this point will be

  • how credible are the results of the investigation?

  • Things didn't get much better in 2021, following the collapse

  • of U.S. hedge fund Archegos  Capital Management and U.K.

  • finance firm  Greensill Capital

  • Credit Suisse had provided financial backing to Greensill

  • as it began to struggle, a  miscalculation that could

  • cost its clients up to $3 billion

  • The Archegos collapse cost its lenders a collective $10 billion

  • UBS says it lost $774 million from trades linked to Archegos,

  • but Credit Suisse  took the biggest hit.

  • It was forced to raise  nearly $2 billion in fresh

  • capital and cut bonuses  after the failure

  • Both Credit Suisse and UBS are hoping that new

  • management will arrest these issues

  • That money or the loss has to be borne by the shareholders

  • ultimatelyand I think what  you've seen in the share

  • price performance has beenreflection of some of the

  • markets anger about what it's perceived to be either 

  • mismanagement or a misunderstanding of risk

  • So this is just about doing  good, basic banking and

  • unfortunatelythe experience of both of these cases suggested

  • that there is still some improvement required

  • Okay, so at this point you might be thinking

  • that Swiss banking is finishedfertigfinifinito!

  • WellunsurprisinglySwiss bankers argue that Switzerland's

  • differences still provide them  with advantages over their rivals

  • What ticks the box still I think for Switzerland is

  • you've got a very stable political systemYou've got

  • Swiss neutralitySwitzerland is not an EU member, so you

  • somewhat escape that oversight from Brussels

  • When you are perceived in Europe to be the ultimate 

  • safe haven destination for capital, people are prepared

  • to take the additional costs that come with

  • parking money in a Swiss Franc account

  • Public perception is also positive.

  • In a recent international poll on the reputation and quality

  • of Swiss banksthey were rated by most respondents

  • as 'good' to 'very good.'  That's more positive than

  • German, British and American financial centers

  • So, has the decline in Swiss banking been overblownor

  • have they lost their status as the premier banking

  • financial institutionWhich is it

  • To be honestit's probablybit of both here.

  • Overblown, probably. I don't think that anybody

  • looking at the state of the Swiss banking industry at

  • the moment would say that this is a sector that is in decline.

  • I think there's still plenty of life in the Swiss banks but what I

  • will say is I think that as a result of many of the scandals

  • that we've witnessed over the last decade and because of 

  • what's happened with interest rates, the Swiss bankers are

  • going to have to work a whole lot harder to

  • justify holding your cash

  • Probably shouldn't give them too much brand

  • presencebut they are Swiss chocolates

  • And when you go to Switzerland will you

  • bring me back some chocolates as well

  • Really? OkayThat's a deal

Swiss chocolates, Swiss chocolates. Ferrero Rocher, are they Swiss?

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Are Swiss banks in trouble? | CNBC Explains

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    Summer posted on 2021/05/27
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