Not Being Able To Swiss Bank Anymore A Real Drag On Big Swiss Bank

UBS is having an identity crisis.
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UBS is a Swiss bank. It says so right in its name, and has for more than 100 years. And do you know why? Because being a Swiss bank used to mean something: Discretion. Prudence. And, yes, secrecy, specifically about who holds Swiss bank accounts, and whether they might not be keeping their money high up in the Alps to prevent their local tax authorities from ascertaining exactly how much they had to tax. The whole enterprise was a Swiss as chocolate, watches, fondue, Ricola, shooting apples off of children’s heads and neutrality. In fact, it was a kind of neutrality, a financial neutrality.

UBS has been saying this for years, most recently back in July, when it complained that the Swiss government wasn’t doing much to preserve one of the country’s most time-honored traditions. CEO Sergio Ermotti didn’t quite get up on a soapbox in front of the Federal Palace and start shouting, “DON’T YOU KNOW WHY SWITZERLAND HAS A BANKING INDUSTRY IN THE FIRST PLACE?!!?” and “WHY ARE YOU GIVING THE GERMANS THINGS THEY’VE SHOWN THEMSELVES QUITE WILLING TO PAY FOR?” but he might as well have. Or not, since it wouldn’t have achieved much. The world has spoken: Protecting tax evaders is as frowned upon in 2017 as buying Nazi gold (another fantastically profitable enterprise for UBS) was in 1946.

There’s a reason Ermotti and the rest of UBS were so frustrated: Being able to evade taxes is pretty much the only reason many clients do business with them. And now that Switzerland is automatically turning over information about said clients, at the same time countries around the world are offering amnesties to Swiss tax cheats, the Swiss are proving significantly less adept at keeping money in then they were at keeping pizza out.

UBS said there were 7.4 billion Swiss francs ($7.4 billion) in outflows from the bank’s wealth-management division during the last three months of 2016….

“The vast majority of the [fourth quarter] outflows were due to amnesty programs,” UBS Chief Financial Officer Kirt Gardner said in an interview.

He added, “This is going to be our year two of this kind of cleanup effort.”

Luckily, the whole world has lost its mind, and now Donald Trump is president, and things couldn’t be better for banks. That’s got to take the sting off a little, right? Right?

UBS also missed out on the juiciest parts of the fixed-income trading rally, largely as a result of its post-crisis strategy. Management admitted the bank wasn't as well positioned as it had hoped: FICC revenue rose just 5 percent at UBS, according to Bernstein analysts, trailing the jumps of 31 to 36 percent at JPMorgan Chase & Co. and Citigroup Inc.

The news isn’t all bad in the U.S.: UBS’s American asset management arm enjoyed its best quarter ever as investors piled in to take advantage of the Trump rally. Unfortunately for UBS, even that is less good news for it and more great news for banks that do more business on these shores.

Those with more involvement in U.S. markets, such as Barclays, Credit Suisse and even Deutsche Bank, should do better….

UBS might struggle for growth in revenues over the coming year.

UBS Saw $7 Billion in Outflows From Foreign Clients [WSJ]
UBS Misses Out on the Trump Bump [Bloomberg Gadfly]
UBS Shows Why U.S. Is Promised Land for Banking [WSJ]

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