UBS banks on growth in business with the ultra-rich

The logo of UBS bank is seen at its Belgian office in Brussels

June 20, 2014. Credit: Reuters/Francois Lenoir

(Reuters) - UBS (UBSN.VX) expects its business with its wealthiest clients to grow by 7 to 8 percent in terms of assets, as the area plays an increasingly important role for the Swiss private bank.

Private banks are increasingly seeking the ultra-rich - typically those with liquid assets of 50 million Swiss francs ($55.9 million) or more - in a shift from an earlier strategy of chasing the "mass-affluent", or moderately rich.

"Growth in net new money of 7 to 8 percent is possible over the cycle, if you look at the past five or six years," Joe Stadler, the Zurich-based bank's global head of ultra-high net worth business, told Reuters in an interview. He did not specify a time frame.

UBS has only published separate results for its ultra-rich division for the past two years. In that period, it has posted quarterly growth of net new money of between 4.5 percent and nearly 12 percent. It recorded growth of just over 7 percent in the latest quarter.

Switzerland's largest lender, and the world's largest private bank by assets, has cut back on risky debt trading, which has been made more expensive by tougher regulations, in favor of its low-risk private banking arm, a move it says will drive returns for shareholders.

UBS' business with the ultra-rich now accounts for almost half of the broader private bank's assets of 899 billion francs. That proportion is up from about a third five years ago.

While business with the wealthiest actually commands a lower margin on assets than other segments, these clients make up for it in sheer volume. Because their assets tend to be diversified between business and private interests, the super-rich also tend to feed into private banks' other arms - investment banking and asset management.

HIGH MAINTENANCE

The ultra-rich are known as a high-maintenance group of clients, typically commanding more sophisticated banking services as well as the best perks from their private banks like private dinners with professional tennis player Roger Federer, a Credit Suisse (CSGN.VX) brand ambassador.
For UBS, which does not break down the ultra-rich segment by region in its results, Asia represents a major growth market, as the region sees a surge in millionaires and billionaires.

"We've been strong in Asia for many years and want to build our presence further. We're also growing in emerging markets, in Europe, and in Switzerland," Stadler said.

Europe is a sore spot for Swiss private banks, which are suffering withdrawals of funds as Germany, France and other European countries crack down on untaxed funds hidden in Switzerland's offshore accounts.

However, the ultra-wealthy are more likely to be tax-compliant, according to Swiss private bankers.
"The debate around tax transparency is hardly relevant for ultra-high net worth clients," Stadler said.
"Today's standards help to prevent banking secrecy being abused for tax evasion, and this development has been favorable for our business."

Switzerland, along with Singapore, has joined the growing ranks of countries agreeing to share tax information, effectively abandoning centuries-old banking secrecy under an onslaught of international pressure.

Swiss banks UBS and Credit Suisse are increasingly seeing competition for the ultra-rich segment, for example from Deutsche Bank (DBKGn.DE) which said last week it was growing quickly with new client money pouring in, following two years of restructuring.

($1 = 0.8921 Swiss Francs)

(Reporting By Albert Schmieder; Writing by Katharina Bart; Editing by Pravin Char)

Swiss banks to tell all under FATCA

Jun 30, 2014 - 11:00

The IRS expects all US tax dodgers to come clean

(Keystone)

The American FATCA legislation comes into effect on July 1. The world’s banks will be required to supply Washington with regular updates on customers liable to pay US tax. This means the end of Switzerland’s much-vaunted tradition of banking secrecy.

Swiss banks and asset managers are gearing up to implement the FATCA (Foreign Account Tax Compliance Act) rules, by which the US government is to get all information on capital held anywhere in the world by people liable to pay American taxes.

How FATCA works
Washington’s new legislation, the Foreign Account Tax Compliance Act (FATCA), aims to fight tax evasion by wealthy Americans (the “fatcats” lambasted by President Barack Obama) by ensuring that tax is paid on all capital held abroad – in banks, insurance companies and other entities.
 According to the legislation, foreign financial institutions have to register with the American tax authorities (IRS) and send in periodic reports on the assets that they hold for American taxpayers. The information should start to flow by April 30, 2015.

In an initial phase, only deposits over a certain limit, such as $50,000 for personal accounts, will be reported. Later all capital will have to be declared.
So far about 80 countries are negotiating or have concluded agreements with Washington to implement the FATCA system.
The American legislation is the model for the standards developed by the OECD to introduce automatic exchange of information on a global level.

Steep costs

Unlike most other European countries, Switzerland opted for a “model 2” agreement, whereby it is not the Swiss tax man but the banks themselves that are to supply the data to Washington.

To do this, the industry players first need to identify all those customers subject to American tax: this means American citizens, of course, but also Green Card holders, and other individuals or companies legally domiciled in the US.

This was a huge operation for the Swiss financial industry to mount. “Implementing FATCA is not so crucial for other countries whose financial institutions have few American customers or who have already been supplying data. Swiss banks, however, manage the biggest slice of transnational wealth in world terms”, says Mario Tuor, communications manager with the Swiss government’s State Secretariat for International Financial Matters (SIF).

“It’s a very complex process,” notes Thomas Sutter, spokesman for the Swiss Bankers Association (SBA), which is looking at costs of CHF200-300 million for the nation’s banks. “We can’t just push a button to find all the customers liable for American tax. We have to identify them, track them down, explain to them what is involved and ask them if they are willing to have their data transmitted”.

Powerful sanctions

Customers may indeed refuse to let their data be handed over – but this will not be enough for them to escape the long arm of the Internal Revenue Service (IRS), the American tax collector. In such cases, banks will still need to tell Washington the number and total amount of undeclared assets.

Double trouble

US expats feel the burden of FATCA

By Simon Bradley

US anti-tax evasion legislation known as FATCA – the Foreign Account Tax Compliance Act – has caused upheaval among the American expat community ...

Bern has to respond with information on all cases within eight months – so gone are the days in which information was released in dribs and drabs over a period of years. “Administrative assistance will be provided, if there is any evidence of an infraction. If the customer is not willing to oblige, he is admitting that he is not at rights with the American tax system,” points out Patrick Dorner, director of the Swiss Association of Asset Managers (SAAM).

“With FATCA, there is practically no more banking secrecy for customers liable for American tax,” admits Sutter. The Swiss government and parliament have had to accept this fact.
FATCA comes with a toolbox of powerful sanctions against banks or customers unwilling to comply, starting with a 30% withholding on all payments of dividends, interest or other revenue from American sources. Financial institutions also are at risk of being locked out of the world interbank market.

Required to register

All wealth management firms, trust companies, insurers and even major industries which have significant financial activities have to get with the American programme. All these companies are required to register with the IRS to avoid being labelled as “uncooperative”.

To apply the FATCA legislation, the American Treasury Department has proposed to other countries two kinds of agreement, which provide mechanisms to relieve some of the administrative burdens.
On the IRS website there are already 4,000 Swiss companies listed. “For months we have been mounting a big information campaign to tell all the asset managers that they have to register, even if they have no American customers or investments," says Dorner. "If an asset manager declines to register, banks won’t work with them. The banks can’t take the risk of working with managers not in conformity with FATCA," he explains.

Two kinds of FATCA

FINMA, the Swiss government’s financial markets watchdog, has issued a warning to all financial institutions calling on them to fulfil their obligations under the American regulations and in particular “not to engage in any action to get around FATCA”.

The new Swiss federal legislation on the FATCA accord, which takes effect on June 30, provides for fines up to CHF250,000 where there is intentional violation of the regulations, including that of having to register with the IRS.

Logical change

It’s a spectacular paradigm shift for this country. Until a few years ago, sanctions fell on those who violated banking secrecy and cooperated with foreign governments. Now they fall on whoever does not go along with shipping data to Washington.

Already the Swiss government wants to go further. By this autumn it intends to start negotiations with the US with a view to switching from a “model 2” FATCA accord to a “model 1”, which would essentially mean automatic exchange of information between the tax authorities.
This change is considered “logical” by the associations of bankers and assets managers. “When talk of FATCA started, automatic exchange of information was still a taboo topic in Switzerland. But we will soon have the OECD international standards, which Switzerland will have to conform to. So the best thing is to adopt this model now for our dealings with the US,” says Dorner.

The IRS expects all US tax dodgers to come clean

(Keystone)

How FATCA works
Washington’s new legislation, the Foreign Account Tax Compliance Act (FATCA), aims to fight tax evasion by wealthy Americans (the “fatcats” lambasted by President Barack Obama) by ensuring that tax is paid on all capital held abroad – in banks, insurance companies and other entities.
According to the legislation, foreign financial institutions have to register with the American tax authorities (IRS) and send in periodic reports on the assets that they hold for American taxpayers. The information should start to flow by April 30, 2015.
In an initial phase, only deposits over a certain limit, such as $50,000 for personal accounts, will be reported. Later all capital will have to be declared.
So far about 80 countries are negotiating or have concluded agreements with Washington to implement the FATCA system.
The American legislation is the model for the standards developed by the OECD to introduce automatic exchange of information on a global level.

US citizens abroad given lifeline
The Internal Revenue Service has given US citizens living abroad further breathing space to get their tax affairs in order.
On June 18 the IRS lifted restrictions to its offshore voluntary compliance programme by allowing citizens to apply if they have less than $1,500 of unpaid tax to declare.
Penalties will also be waived for those who can show that they did not wilfully hide assets.
This might apply to thousands of dual citizens living outside of the US who did not know that they should have been filing US tax returns.