Switzerland | ITW Steinherr
Alfred Steinherr, Professor of Economics and Finance, Sacred Heart University Luxembourg
Dossier Switzerland SOLID AS A ROCK Alfred Steinherr is Professor of Economics and Finance at the Sacred Heart University in Luxembourg. His academic career took him to the International Monetary Fund, the Commission of the European Union and to the European Investment Bank. Born in Germany, his passion for Switzerland began with his studies at the University of Lausanne. Since then, he has become the author of various publications on economics and finance.
LFF: Recently the Swiss Finance Minister has said that she sees a trend towards automatic exchange of information, thus jeopardising the concept of a withholding tax. What impact would that have on SWITZERLAND? AS: Switzerland will continue to attract money, simply because traditionally the country has been a safe haven in terms of a strong currency, whereas the Euro, conceived as a strong currency, has recently shown this to be a misconception. From the currency point of view, Switzerland remains attractive; from a fiscal point of view, Switzerland is attractive. If there is any question about which country could be more easily pressurised into an attitude of anti-banking secrecy, then probably Luxembourg does not have as strong a position as Switzerland has. However, we have to separate a few issues. One is the country and the second is the institutions of a country, like Swiss banks. What has happened to Switzerland is that its major banks, particularly UBS, but also others, have encountered serious difficulties in the United States. That is to some extent institution specific. The same institutions are present here. One cannot really say that the institutions here have a competitive advantage over the Swiss institutions. Itâ€™s more or less the same players. So then it becomes a matter of the country, its stability, its legal dispositions, its regulatory procedures. In some neighbouring countries there is now a very strong anti-banking attitude. Itâ€™s the usual populist kind of reaction following a crisis. The crisis was government-induced, but you need a scapegoat and that is the banking sector. Faced with that very negative attitude, particularly in Germany, but also to some extent in France, there will be pressure on the neighbouring countries. The pressure on Luxembourg will possibly be stronger than it is on Switzerland.
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Has Switzerland missed the bus because it didn’t shape international standards for the automatic exchange of information? Luxembourg is part of the European Union. Therefore, whatever legislation is introduced in the European Union or the Eurozone, Luxembourg cannot escape. In this sense I would certainly feel safer in Switzerland. Switzerland is not absolutely safe, as one can see from the conflict between Germany and Switzerland. But certainly the Swiss have stronger means to withstand.
LFF: Switzerland wants to achieve a basic agreement on the automatic exchange of information for the entire EU. How likely is this to happen? AS: Internationally, it is always preferable to have a multilateral agreement than a bilateral agreement. That is the general philosophy of all multinational institutions, for trade for instance. It’s also much easier to have one agreement than to negotiate with each country. If you negotiate with each country, you can create comparative advantages and disadvantages. The Swiss have a very strong argument to say: bilateral doesn’t make sense. And obviously they would benefit from a multilateral solution because, within the European Union, there are countries that would be closer to the Swiss than to the German position. Luxembourg is one, the UK would be another. It’s a very good strategy that the Swiss have adopted to go for a multilateral agreement. There is very little that a country like Germany can really do if the Swiss refuse to negotiate with them.
Alfred Steinherr Switzerland, like Luxembourg, benefits from being a small country and therefore being more easily able to handle financial privacy, as long as financial privacy is the major attraction for foreign investors. Both countries are in need of foreign investments. Therefore they have to make it attractive and financial privacy is a costless attraction. Obviously they try to preserve this privilege because with automatic exchange of information, financial privacy would not be very helpful.
Can the image of a safe haven replace that of financial privacy? Alfred Steinherr For many foreigners, financial privacy is not the big attractor to Switzerland. It is the security of the country that comes first, then the privacy. Let’s assume there was no financial privacy worldwide; I think that Switzerland would still have a financial centre of global importance. The advantages of Switzerland are its strong brand plus the currency. A lot of the money in Switzerland is not invested in Euros, but in Swiss Francs. For an investor, the Swiss Franc is a good alternative to the Dollar or the Euro. For the last hundred years, they have had low inflation. They have a macroeconomic equilibrium that is attractive and in some cantons – though not in all - the fiscal treatment is extremely favourable.
LFF: Has the reputation of the Swiss banking supervisor been damaged as well? AS: The Swiss supervisors were the first to react very strongly, one can argue too strongly: they have gone beyond Basel III, requesting an even higher capital adequacy ratio than Basel III does and they have really implemented it. That was a typically Swiss reaction, in order to reestablish confidence. As a country, Switzerland can react faster than the Eurozone or the Basel group and they have taken advantage of that. The Swiss always had a light form of governance and regulation. Nobody knows who is the head of the Swiss government. One of the reasons is that it changes every year. The regulatory role is extremely light because there was this view of small government and leaving these things to private organisations. The light form of regulation was also attractive to business. In the meantime they have invested in more and have more solid regulatory structures.
LFF: What about education in finance in Switzerland? Is the country well positioned in that area? AS: The ETH Zurich or the universities of Zurich, Basel and Geneva have for the last hundred years been among the leading universities of the continent. For instance, in economics, the Zurich ETH and, in business, the universities of Lausanne and St. Gallen are ranked higher than any German university.
LFF: What is your forecast for private banking in Switzerland? AS: Investment banking is having difficulties everywhere. There was a transfer to other banks, for instance the Geneva private banks benefitted. But private banking in Switzerland will remain strong, in line with what I said before. I don’t think that Switzerland will be deserted. It is going through a difficult period but they are also helped by the fact that banking is in a crisis everywhere. There are no clear winners. That’s probably one positive thing for the Swiss banks: the others are not fairing much better. In this sense they have their problems, but behind them is Switzerland: rock solid and liberal. Do you really want to entrust your money to a French bank with a government that makes changes from one day to the next and imposes a 75% tax? Switzerland is strong and the currency is strong and the institutions are strong. EA
SWITZERLAND | STRENGHTENING THE BASE
Dossier Switzerland Strengthening the base Swiss private banks, like most financial institutions around the globe, face structural challenges they must address. What is the role and strategic focus of Swiss banks in Luxembourg? What is their view on the future of banking secrecy? LFF has interviewed decision makers from Swiss banks in Luxembourg to find out.
The world has taken a dramatic turn. "As with dramatic turns in the past, the Rothschild family has had to reinvent itself for over 250 years", notes Marc Ambroisien, CEO – Chairman of the Executive Committee of Banque Privée Edmond de Rothschild Europe (BPERE). With more than 800 employees, of whom 100 work in branches in Belgium, Spain, Portugal and Italy, this familyowned group has developed into one of Luxembourg’s largest Swiss banks. BPERE has finalised an ambitious strategic plan for the years 2013 to 2016. Mr Ambriosien reveals the main priorities regarding Luxembourg: "We want to expand our private banking services with a focus on international high net worth (HNWI) and ultra high net worth individuals (UHNWI), who are clearly Luxembourg’s target segment. In addition, we will strive to further develop our institutional and fund services, which are perfectly adapted to our clients’ requirements. Last but not least, we want to defend our margins and better control our cost base".
EUROPE IS ON THE RADAR Lombard Odier & Cie is another Swiss firm of private bankers with an impressive history. Founded in 1796, it is the oldest private bank in Geneva and one of the largest in Europe. It has a network of 24 offices in 17 countries. Stanislas Peel, Local Managing Director and Member of the Executive Committee, Lombard Odier (Europe) SA discloses the bank’s plans for Europe. "For more than a decade, Lombard Odier has developed its European presence through subsidiaries. Most recently, we decided to simplify our European legal structure by creating a single European bank with headquarters in Luxembourg; the subsidiaries are being transformed into branches. We are convinced that we can offer added value to our clients in Europe".
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PLAYING ON SEVERAL CHESSBOARDS Pictet & Cie (Europe) SA, based in Luxembourg, is the Pictet Group’s bank in the European Union. With 360 employees, it is the second largest office after Geneva. In the Grand Duchy, Pictet has five business lines. It offers both local and cross-border wealth management and planning services for private clients as well as custody services for institutional clients, private clients and independent asset managers. Pierre Etienne, Managing Director of Pictet & Cie (Europe) SA underlines that the bank also plays an important role when it comes to investment funds. "Luxembourg is also the Group’s hub for Pictet Asset Management’s fund administration business. This has enabled it to accumulate considerable expertise in the set-up and administration of funds for third parties. Finally, it also provides fund distribution for Pictet in the Benelux". Founded in 1856, Credit Suisse read the sign of times and dramatically transformed all of its businesses during 2012. Specifically, this meant increasing its capital base and reducing risk, risk-weighted assets and its notional balance sheet. Yves Maas, Country CEO of Credit Suisse Luxembourg, underlines that the Grand Duchy is seen as an important pillar serving as a hub for its private banking clientele. As an integrated bank, Credit Suisse Luxembourg, established in 1974, offers its combined expertise in private banking, investment banking and asset management. But investment funds play an important role too. "Luxembourg profits from its unique selling proposition as the leading fund centre in the European Union. Smooth and efficient registration and application processes and the benefits of the European passport stand out". UBS is another Swiss bank founded in the second half of the 19th century. Its presence in Luxembourg dates back to 1973. Today, its strategy is based on three pillars: wealth management, asset servicing as well as booking centre for the cross-border wealth management and fund businesses in Europe. UBS in Luxembourg has just been recognised as the country's top service provider to ultra high net worth individuals and family offices in the Euromoney Private Banking Rankings. René Mottas, CEO of UBS Luxembourg, affirms. "One of Luxembourg’s main value propositions is its knowledge and expertise of the fund industry. The UCITS brand, for instance, is very important to the Grand Duchy, with funds being registered for distribution in the high-potential markets of Asia and Latin America".
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BSI Group is another example of a bank that has been guiding its clients for a very long time; since 1873 to be precise. It is a wealth management and private banking organisation headquartered in Lugano, which has evolved over the years into an international player. BSI Group hadn’t set foot in the Grand Duchy until it acquired Banca del Gottardo in 2007, which was already present in Luxembourg. According to Nicola Battalora, member of the Group Executive Board and CEO of BSI Luxembourg SA, acquiring Banca del Gottardo was a strategic decision that has paid off. "We then basically discovered the value of Luxembourg and we started to develop a strategy which allowed us to create a European banking platform from here. We have to make sure that whichever service we offer we are able to differentiate Luxembourg from competing financial centres".
NOT BLACK AND WHITE China and India account for 40% of the world’s population; according to United Nations projections, by 2050 Asian countries will represent more than half of the world’s GDP. Is this a reason to focus almost exclusively on geographic areas of growth and abandon Europe? The picture is not quite that black and white. Expansion in growing markets without abandoning the Old Continent is the key strategy. Marc Ambroisien of Banque Privée Edmond de Rothschild Europe highlights that his bank is pursuing its expansion in Europe while looking abroad. "BPERE has four branches in Europe and two representative offices in Eastern Europe. We intend to strengthen our position in Europe but at the same time have a pragmatic plan to expand in Asia, Latin America and the Middle East". Carl Verbrugge, Director and Chairman of the Executive Committee, Lombard Odier (Europe) SA states that there is no way that his financial institution will abandon Europe. "Although Europe is facing a sub-par growth environment, we still see opportunities to increase our client base since many wealthy Europeans are unhappy with their current banking relationships". Yves Maas of Credit Suisse Luxembourg reminds us that mature markets – Europe, the US and Japan- still represent two thirds of the world’s wealth. "These markets are expected to see a continued – albeit relatively lower – growth, driven by further wealth accumulation and a general transfer of wealth". In other words, they will seek to increase market share in mature areas and expand in emerging markets at the same time. Europe is also on the radar of UBS Luxembourg, as René Mottas confirms. "Our wealth management business provides high-quality investment advice as well as tailor-made structured solutions for clients across the Benelux markets but also the Nordic countries, Germany and the Middle East". Nicola Battalora, the Swiss-born CEO of BSI Luxembourg had worked in many countries before choosing to come to Luxembourg. Why? Because he believes in the importance of its financial centre. Along with that, he was appointed to the Group Executive Board in 2012, with the mission to develop business in Europe. "We are establishing a value proposition for every European target market. The country managers in Europe are in charge of defining the services to be offered and presence that is needed. In order to be successful, you need a clear profile".
Over the past 20 years, Pictet Group has experienced internationalisation and in addition to its traditional private banking business, a major diversification of its activities, notably with the growth of institutional asset management, mutual fund distribution and asset services. "By way of illustration, the Pictet Group had 300 employees in 1980, mainly based in Geneva. Now it has 25 offices with more than 3,300 people around the world. The group plans to recruit another 100 people in 2013," reports Pierre Etienne, highlighting the growth of the Group.
WITH CONVICTION AND RIGOUR Switzerland has political stability and a strong currency. The country has also been identified internationally by its banking secrecy. The political shift came in 2009, when Switzerland adopted OECD standards on the exchange of information on request in tax matters. What will happen to Switzerland when banking secrecy is a thing of the past and have Swiss banks suffered from the recent articles in the international press with regard to tax evasion? Though the Group Edmond de Rothschild has never been involved in any of the scandals, the bank had to reassure its clientele by reminding them of Rothschild’s family motto: Concordia, integritas, industria, with conviction and rigour. "A Swiss or Luxembourg wealth management business built solely on banking secrecy and non-tax compliant clients has no future", Marc Ambroisien adds. René Mottas of UBS states that the bank’s relationship with the client is based on trust and respect of their privacy. "UBS will encourage clients to legalise their legacy assets through voluntary disclosure. Dealing with legacy issues and ensuring legal certainty is in the interest of clients as well as the bank". Yves Maas says that a bank like Credit Suisse – alongside other Swiss banks – cannot operate a business model under which they attract undeclared assets. "The Swiss banks should be confident enough to run their business without such assets". Other banks share this positive attitude. Stanislas Peel of Lombard Odier underlines that Swiss banking will continue to develop, saying "we stick to our values such as discretion and protection of privacy and focus on key qualities like excellent know-how and political stability". Pierre Etienne of Pictet states that privacy is a value and tax compliance makes it all the more legitimate. He doesn’t think that values such as neutrality and discretion will be affected by changes in legal frameworks. "They are a mind-set, and one prized and supported by the Swiss population as a whole". Nicola Battalora of BSI calls it ‘back to basics’. In other words, refocusing on what is promised to the bank’s clients. "The value proposition becomes the core of our services. That is why we need to develop products and services with added value". Swiss banks know that the time has come to look ahead. This means a greater focus on their customers’ needs and an increase in operative efficiency. The times of one-strategy-fits-all are over. CW
Switzerland | BEYOND WATCHES AND CHOCOLATE
Dossier Switzerland BEYOND WATCHES AND CHOCOLATE Nicolas Bideau is Head of PrĂŠsence Suisse, the coordinating commission for the presence of Switzerland abroad. Thus, he is a professional at country branding. Switzerland is one of the few states that has managed to project a uniform and positive country brand worldwide. This helps the confederation survive difficult times, without tarnishing its image.
LFF: Switzerland was recently named as best country brand globally. What is the secret of your success? NB: Two factors stand out. On the one hand, there are the positive connotations associated with the traditional image values of Switzerland (nature, the Alps, watches, chocolate, etc.). On the other hand, according to image surveys like the Nation Brands Index and other international rankings, the positive image is associated with good governance, the lively democracy, an above average quality of life and a competitive and innovative economy.
LFF: Why is communication and branding important for a country? NB: Beside the general competition for location that countries are exposed to in an increasingly globalised society, in which the communicative positioning of countries plays an important role, there are other, political reasons. The technologically and economically driven transformation into a worldwide information society has influenced the approach to foreign politics. Worldwide, more and more information is available in an ever shorter time. As a result, the media exposure of foreign politics increases. This requires proactive communication strategies and instruments on the part of governments. They have to be able to communicate their politics. If an internationally active state that is integrated with world affairs doesnâ€™t communicate, others will take this over in its place. Given the general flood of information, the challenge is to communicate content that will actually be noticed.
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Did the fact that Switzerland is not a member of the European Union have an influence on the decision to develop a communication strategy?
Nicolas Bideau In many countries of the EU and also in Brussels, the state of knowledge and information about Switzerland is still relatively poor. Sometimes we notice critical prejudice against Switzerland. What role Switzerland’s nonmembership in the EU plays in that regard is difficult to say. Be that as it may, it is important for Switzerland to change these negative perceptions. The challenge for everyone involved in communication, vis-à-vis the EU, is to proactively position Switzerland, both in Brussels and in the EU Member States, as an interesting and innovative partner with regard to trade, road traffic, market research, finance and so forth, and as an European state showing solidarity.
LFF: What are the most common prejudices regarding Switzerland and what are the country’s weak points?
LFF: What are your main messages and which countries do you target?
NB: Regarding the perception of Switzerland, it can be said that incidents concerning the Swiss financial centre and Swiss banks encounter the most frequent critical response abroad. This can be seen in the extremely limited and one-sided media coverage that concentrates on financial crime and "banking secrecy". Positive developments in the financial and tax field, such as the blocking and rejection of "potentate funds", "too big to fail", international collaboration and the strategy of the financial centre are barely noticed. Other positive issues tend to remain in the background. These include criticism in the context of important sociopolitical events, e.g. regarding Swiss migration and immigration policy, or regarding its European policy.
NB: The Swiss Confederation Communications office adopts a broad approach. On the one hand Switzerland’s strengths, such as education, research and innovation, must be widely and actively communicated. Areas such as health and social policy - the district social security system, medical care, research in the health field and preventative measures – also show positive communication potential. Other topics with potential include sports, especially winter sports and outstanding personalities like Roger Federer and Fabian Cancellara. And we should not forget culture, where innovative architecture, design and contemporary art meet with international interest. Presence Switzerland will increasingly use this potential to communicate about the Swiss Confederation. On the other hand there are sensitive issues that tend to be handled critically, such as financial and tax questions or sensitive socio-political topics in the field of migration and others. These issues need to be communicated differentially, emphasising positive aspects and developments.
"The technologically and economically driven transformation into a worldwide information society has influenced the approach to foreign politics."
On which levels do you communicate? Nicolas Bideau Communication about the Confederation takes place on different levels. On the one hand, it targets the broad public and, on the other hand, current and future opinion leaders and decision makers. Finally the media play an important role as multipliers, depending on subject and occasion.
Nicolas Bideau, Head of Présence Suisse
LFF: How important is a uniform corporate identity? NB: The implementation of a clear brand image creates the necessary conditions for a sustainable perception of Switzerland and helps it to stand out from other countries. Within the corporate identity of the Confederation, there is already a brand for the Confederation’s activities at home and abroad. The Swiss brand defined by Presence Suisse is consistent with that and is the visual basis for specific activities of the Confederation’s communication.
LFF: How important is social media in that context? NB: Social media are rising in importance as a communication channel and the Confederation’s communication policy is adapting to this development. On the one hand, these channels are objects of media monitoring. On the other hand, they are used in the framework of bigger communication activities. For instance, we increasingly made use of social media for the "Swiss Pavillon" at the World Exhibition in Yeosu, as well as for the "House of Switzerland" during the Olympic Games in London, whereby we were able to reach a younger audience on a broad range of topics.
LFF: What is more important: a scoop on a special topic or a long-term communication plan with recurrent messages? NB: Both are important. Short-term communication is crucial during exceptional situations. Alongside that, a long-term, proactive communication policy is important. The Swiss Confederations’ communication strategy 2012-15 follows a long-term approach.
LFF: Do you have Q&As prepared that respond to the most common prejudices or questions? Who has developed these? NB: Normally, such fact sheets are developed on demand, for instance in exceptional situations, together with the Federal Offices concerned. They serve as a basis for communications.
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LFF: Do you have an emergency plan in the case of negative news or when you are "attacked" by international media? NB: Due to the continuous monitoring of foreign media (including social media), Presence Switzerland has an "early warning system". Regular analytical reports keep us informed about the tone and direction of foreign reporting. As soon as we observe critical tendencies, the concerned authorities get briefed. Concrete actions are decided on a case to case basis. Coordination between the concerned parties plays an important role, as does the choice of communication instrument, in collaboration with the Federal Chancellery.
LFF: How much of your communication is action, how much is reaction? NB: Presence Suisse in general follows a proactive approach that emphasises the strengths of Switzerland, such as in the field of innovation.
LFF: Which levels of the human psyche do you address, e.g. emotions? NB: When Presence Suisse takes part in big international events, things like the World Exhibition and the Olympic Games, we explicitly seek to arouse an emotional response that goes beyond the cognitive level. The same applies to the concept of the brand "Switzerland" by which we seek to give people a Swiss experience that focuses on people. What is important is that we address peopleâ€™s feelings. This, for instance, is the subject of the "Swiss Dining" concept, which was introduced in the House of Switzerland during the London Olympic Games in 2012. Within this framework, quality Swiss culinary products were available for tasting and introduced to a selected audience.
LFF: Regarding financial privacy, do you collaborate with countries that also have a strong financial sector, such as Luxembourg and that are sitting in the same boat? NB: There is no collaboration in the field of the Confederationâ€™s communication so far.
How has the ongoing discussion about the automatic exchange of information and banking secrecy harmed Switzerlandâ€™s image? Nicolas Bideau Media coverage regarding this topic has been increasingly critical in the past. It remains to be seen how far this critical coverage affects the image of Switzerland. You have to take into account that the image of a country is relatively stable and slow-moving and that it is mainly characterised by personal experience and knowledge. Added to which, media impact is neither linear, nor equally strong amongst everybody. This also explains why the common image of Switzerland is still excellent, despite critical media coverage. EA