US fine provisions hit Swiss private banks

Inside Swiss private bank Wegelin, which was forced to dissolve after being convicted by a US criminal court at the beginning of 2013 Keystone

Swiss private banks performed poorly in 2013 with one-third posting losses. This is partly due to CHF900 million ($987 million) set aside in provisions to cover possible breaches of United States tax regulations, says a study from a leading Swiss business university.

The reportExternal link by the University of St Gallen and the global tax firm KPMG published on Wednesday said 59 out of 94 banks analysed showed declining performances or had only managed to stabilise their downward trend in 2013. This compared with one in five banks in 2012.

“Declining profitability and simultaneously low growth in assets over the past year have negatively impacted performances,” the authors wrote, adding that half of the smaller and medium-sized banks reported an outflow of assets.

The US tax declaration programme launched by the Department of Justice in August 2013 allowing Swiss banks to come clean about American tax-dodging clients was a “significant factor” behind private banks’ poor performances, the report indicated.

A total of 21 of the 94 private banks have put aside provisions for potential fines by the US authorities as well as consultancy fees, while 11 banks have just put aside money for consultancy fees. This amounts to a total of CHF900 million. However, banks are expected to set aside further amounts, the report added.

“Pressure on Switzerland’s private banks remains high, a fact that will encourage continued consolidation at the accelerated pace which already set in, noticeably, in 2014,” it went on.

“Banks must ask themselves whether the time has come to make lasting changes to their business model or whether they would prefer to pull out of Switzerland’s private banking market.”

Last year the same authors warned that a quarter of the 103 Swiss private banking operations they surveyed could go bust in the next three years