Onshore banking grows as offshore row rumbles

Keystone

As international pressure on offshore tax havens mounts, Swiss banks have been increasing their focus on setting up onshore activities in other countries.

But the strategy of servicing well-heeled clients in their own backyards has as much to do with meeting new demand for services as with fears over the future of offshore banking, an expert believes.

Switzerland has been at the centre of a growing international dispute linking banking secrecy and tax evasion. Bank UBS has been forced to end offshore activities with United States clients while the 20 most influential countries in the world have hinted that Switzerland may be named as a tax haven.

Some observers fear the coordinated global assault could signal the demise of traditional offshore banking. “Onshore will be more important than offshore in future. Offshore will still exist but the biggest chunk of money invested into banking will be in onshore facilities,” Professor Nuno Fernandes of the IMD business school told swissinfo last week.

Many Swiss banks, led by UBS, have been busily setting up branches and centres in a number of countries in the last few years – close to home and at the far reaches of the globe. A study of the phenomenon last year found that two thirds of the 95 Swiss banks surveyed said it was important to set up onshore facilities.

Italian amnesty

Switzerland is home to an estimated 30 per cent of the world’s offshore assets. But mid-sized Swiss banks such as Vontobel, Sarasin, Julius Bär and EFG have been particularly active in growing their onshore operations in the last two years.

Matthias Memminger, leader of private banking at PricewaterhouseCoopers in Switzerland, believes the rush was partly sparked a decade ago by an Italian government amnesty on tax cheats that sparked huge outflows from Swiss banks.

“Banks started to think that if every country did that, then a lot of offshore wealth could disappear,” he told swissinfo.

However, fears over shrinking assets have only been one part of the banks’ thinking as they realign their models, according to Memminger. The last few years has seen a huge build-up of new wealth in Asia and eastern Europe, with many clients wishing to keep their money at home than send it abroad.

In addition, many countries have tightened their financial rules, making it easier to trade within the regulatory frameworks of those states.

Death grossly exaggerated

Sarasin is one Swiss private bank that has recently expanded abroad. Last week it was granted a licence to open an office in Warsaw while in 2008 it opened new operations or announced intention to do so in Ireland, Dubai, Oman, Bahrain, Qatar, Spain and France.

Sarasin spokesman Harald Melzer denied that the push was driven by fears that offshore banking in Switzerland would wane.

“It is always presumed that this is related to the current debate on tax havens,” he told swissinfo. “The most important reason was to move into the most dynamically growing regions of the world. We wanted to make ourselves visible to clients in the face of increasing competition.”

Memminger believes talk about the demise of offshore banking is grossly exaggerated. “People pronounce its death every two or three years, but it is still alive,” he said.

swissinfo, Matthew Allen

Onshore activities

Switzerland’s two largest banks, UBS and Credit Suisse, have been expanding their onshore operations in a number of countries for the last decade. In more recent years, mid-sized Swiss banks have mirrored this strategy.

Sarasin received licences to operate in Bahrain and Oman in July of last year and are also pushing into other regional zones. The bank said earlier this month that the licence to operate in Warsaw was part of a sustained push into central Europe.

EFG Group expanded in Canada, the US, India, France, Thailand, the Philippines, Lebanon and Bahrain last year.

Julius Bär obtained a licence to operate in Turkey in 2008, to complement new offices in Milan and Abu Dhabi in 2007.

Bank Vontobel opened new offices in Dubai and Madrid last year and announced a major push into Germany.

Pictet established a foothold in Dubai last November and started retail operations in Hong Kong earlier in the year.