Open secret

Jason Bourne may be looking for a new vault to stash his cash. In the wake of the highly publicized end to Swiss bank secrecy and amid a still-festering global financial crisis, many of the country's private banks look unlikely to survive the downturn.

After decades of refusing to reveal information about its own customers to foreign governments, Switzerland in March bowed to international pressure and said it would begin complying with information-sharing standards established by the Organization for Economic Cooperation and Development.

The concession came just as the sector reported that 2008 income dropped an estimated 20%, with portfolios and management fees tumbling. The last thing private bankers need is a new exodus of skittish customers.

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"Swiss private banks have unique knowledge and experience in the field of cross-border private banking. Good acquisitions and strategic alliances will allow them to reinforce these advantages," says Carlos Ammann, president of Booz & Co. Switzerland. In a recent industry survey, Booz questioned 20 top Swiss private banking executives. All felt the change to secrecy laws would usher in a round of consolidation -- though most felt they would emerge as buyers, not sellers.

The dealmaking has already begun. American International Group Inc. in December agreed to sell its AIG Private Bank Ltd. of Zurich to Aabar Investments PJSC for about Sfr307 million ($267 million) in cash as well as the assumption of Sfr100 million in debt. Listed on the Abu Dhabi stock exchange, Aabar is majority owned by government-backed International Petroleum Investment Co.

Just over a year ago, Italy's Assicurazioni Generali SpA paid Sfr1.8 billion for Swiss Life Holding AG's Banca del Gottardo private banking division, while St. Galler Kantonalbank took over the private Swiss and Portuguese banking unit of Anglo Irish Bank Corp. Ltd.

Before Switzerland decided to comply with OECD rules, the private banks profited most from the feared end of bank secrecy. Last year, UBS, the country's biggest bank and the world's largest wealth manager, saw Sfr123 billion leave its money management and business banking unit as customers lost faith in the behemoth.

The Swiss Bankers Association says little of that money left the country, with most landing instead at stodgy private banks.

Switzerland wasn't the only country jumping to comply with the OECD standards in March, as nearly every other well-known tax oasis also jumped on board. They moved not long after the G-20 threatened to add a parcel of countries to a blacklist of uncooperative nations -- one that could have carried tough diplomatic penalties. Many countries, including Austria, Belgium and Liechtenstein, got on board before the G-20 finance ministers meeting March 14.

In Switzerland, the reforms followed a record $780 million fine doled out by UBS in February to settle some, but not all, tax-evasion investigations by U.S. authorities. Part of that settlement included handing over the names of clients with accounts at its U.S. operations. But the Internal Revenue Service wanted the identities of U.S. clients with accounts in Switzerland. Since the U.S. asked for Switzerland's help, Swiss politicians were backed into a corner.

As the UBS saga seized the limelight, behind the scenes, Germany, France and the U.K. were leaning hard on its neighbors to end the secrecy laws and add hidden tax dollars to their coffers. The German government has been especially aggressive after discovering the names of wealthy German citizens hiding cash in Liechtenstein.

One of those identified was German überexecutive Klaus Zumwinkel, then the much-celebrated CEO of Deutsche Post AG, who also sat on several supervisory boards and eventually paid about €1 million ($1.3 million) in tax-evasion fines. German Finance Minister Peer Steinbrück took repeated shots at Liechtenstein, which briefly stopped sharing its art collection with Europe's biggest economy over the tax row. Steinbrück still feels the recent reforms don't go far enough and bristled at criticism over using the G-20 blacklist as leverage. A Swiss parliamentarian retorted by outrageously comparing the German minister to the jackbooted Germans of a different generation.

Change comes slowly in Switzerland, a country of 7.6 million that prides itself on charting its own course. Before the government will even comply with the reforms, it has to renegotiate more than 70 double taxation treaties.

And Switzerland will let down its guard only if other tax havens do as well. "We must defend our position by ensuring that what is true for Switzerland is also true for our competitors," wrote Grégoire Bordier, chairman of the Geneva Private Banks Association and a partner with private bank Bordier & Cie. That will take time -- and some of the boardroom intrigue Bourne would find familiar.

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