State Street Risks Losing $52 Billion Swiss Pension Mandate

(Bloomberg) — State Street Corp. is at risk of losing a $52 billion pile of Swiss pension assets as citizens start to worry that their savings might become a bargaining chip in Donald Trump’s deepening trade war with Europe.

Lawmakers in Bern are scheduled to vote on Thursday on a bill that seeks to order the state agency Compenswiss to move custody of the assets back to a hometown bank. It would be the latest sign that the US banking behemoth is at risk of losing key business in Europe after State Street had mandates pulled by pension funds in the UK and Scandinavia.

“The custody of assets entrusted by Compenswiss in Switzerland is the core business of State Street,” a spokesperson for the Boston-based firm said ahead of the vote. “The bank carries out this mandate with due diligence, drawing on its over 230 years of experience in this field. State Street does not comment on the political decision-making process.”

The vote showcases nervousness in Switzerland — a nation famed for its obsession with the preservation of wealth — at the advent of the new Trump administration. While the US president hasn’t yet threatened the country with tariffs — as he’s done to the neighboring European Union — memories linger of how Switzerland was branded a currency manipulator during his first term in office.

“The risk of the US authorities freezing the assets of the AHV compensation fund was analyzed by Compenswiss as part of the tender process and deemed highly unlikely,” Eric Breval, chief executive officer of Compenswiss, said in a statement to Bloomberg. “Even with a Swiss bank as the global custodian, the AHV fund would not be protected from sanctions.”

A Recent Win

State Street is not the only US bank coming under scrutiny in Switzerland. This week, two socialist lawmakers also questioned Zurich’s cantonal government about $36 billion held at JPMorgan Chase & Co. by the canton’s BVK pension fund. A spokesperson for JPMorgan declined to comment. 

To be sure, as a custodian of the assets State Street has appointed local depository banks to handle the funds, meaning no Swiss savings have actually left the country. But anxiety around US-European ties is now such that any American involvement in money management is starting to make locals uneasy.

Thomas Matter, a lawmaker for the right-wing Swiss People’s Party who pushed for the bill, acknowledged to Zurich’s Tages-Anzeiger that the risk of the US sanctioning Switzerland is low. 

“But we have to avoid even the smallest risk, because these assets are ultimately the substance of our retirement funds,” he said.

State Street only began providing custodial services for Switzerland’s public pension system, known locally as AHV, last year after it won the mandate away from UBS Group AG, which had previously held the mandate for more than two decades.  

The move was done in order to save Switzerland as much as 5 million francs in the coming years and the government has warned it could face added costs if the mandate is revoked from State Street within the first five years. 

Problematic Precedent

Switzerland’s banking lobby has argued against the bill, saying it could set a problematic precedent for foreign banks looking to do business in the country.

“We are of the clear view that private companies need to be able to trust formal procurement processes,” the Swiss Bankers Association said in a statement. “If you start excluding a banking group when giving a mandate, that harms the Swiss financial center.”

For State Street, the vote in Switzerland comes as Danish pension fund AkademikerPension recently informed the bank’s asset management division that it’s pulling a mandate worth 3.3 billion kroner ($482 million) after it joined other US-based money managers in backing away from Climate Action 100+, the world’s biggest investor group devoted to tackling global warming. 

A spokesperson for State Street said the pension manager’s decision to reduce “the use of external managers was prompted by an exercise to increase insourcing capabilities.” The representative added that State Street looks forward to continued discussions with the Danish fund about future opportunities.

State Street also recently lost mandates with UK-based the People’s Pension. The US money manager’s decision to abandon the climate group coincided with growing attacks — including threats of litigation — by Republican states on pro-environmental strategies.

All three mandates are a relatively small slice of State Street’s business, which has $46.6 trillion in assets under custody. Still, the company has been increasingly looking to overseas markets for growth. 

If the Swiss parliament’s lower house votes in favor of the bill this week, it will be presented to the upper house for a vote, which could come as early as June. 

“Before Trump, I had no worries,” said Heidy Kälin, a 73-year-old Swiss pensioner from the town of Einsiedeln. “But now the political situation is so unpredictable that I’m very afraid. My husband and I have both worked all our lives, and this is our retirement money.”

(Updates with State Street’s further comment in fifteenth paragraph.)

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