German wealth managers are now openly promoting the country as tax haven for Swiss residents: The website of this German wealth manager basically says:

“Tax Oasis Germany: The German finance minister wants to stop tax havens worldwide. But he has overlooked one - Germany. Because Germany offers non-residents tax advantages - especially Swiss residents….”

Now, shouldn’t the OECD jump on this case and call for an emergency meeting of the G20?

It seems that over at Credit Suisse they are panicking about the tax probes lead by the Germans and other  European governments against offshore clients and also bank advisers. We have been contacted by former Credit Suisse clients, some of them long standing clients, who have been rudely kicked out as clients. We have credible information that even clients who legalized their holdings in Switzerland have seen their accounts canceled. Only few weeks ago Credit Suisse sent a letter to foreign clients with less than 1 Mio. Euro that they have to pay additional fees if they want to keep an account in Switzerland. MyPrivateBanking has copies of this letter.  We will follow up with this story next week and hope to get some comments from the CS management.

After some dispute within the German federal government on the legality the German state Lower-Saxony finally bought another CD containing data from about 20.000 German holders of Swiss bank account. This time supposley Euro 185.000 were paid to an unidentified seller.

The new business model for private bank employees is still intact and banks and clients may like it or not: Offshore-banking has no future. Pressured by “data leaks”, tougher regulations for tax havens and stricter law enforcement at home less and less clients will take the risk of bringing untaxed money across borders.  Banks with a lot of offshore-clients better adopt their strategy now!

Liechtenstein had net money outflow of CHF  7 bn (USD 6.5 bn) in the year 2009 (source in German). However, overall assets under management increased by 17% to USD 250 bn. The negative net new money is most likely a consequence of the actions against offshore tax shelters taken by EU countries and the US. Liechtenstein’s pro-active policy to work with EU governments and the US authorities on the revision of double taxation agreements is probably one factor that money outflows could be contained to less than 3% of total assets. MyPrivateBanking has found that the outflow of money from Switzerland has probably been more severe in 2009.

Just want to quickly post a link to the Swiss (German speaking) daily NZZ which today had an excellent analysis on the new Fatca act that was just signed by Obama. This law requires that foreign banks and other financial instiutions disclose all US account holders to the US tax authorities. The provisions include a 30 percent withholding tax on U.S. source payments to foreign financial institutions, foreign trusts, and foreign corporations that do not agree to disclose their U.S. account holders and owners to the IRS. We will follow up early next week with more analysis on our main site as this is a major and impotant development.

A few months ago we have made an analysis of data from the Swiss National Bank. It showed that between January 2008 and August 2009 foreign private assets in Switzerland had declined by 25.9% (whereas domestic private assets declined by only 13.8%). Three months later we have gone back and looked at the latest data, covering the period until November 2009. The data have not improved - on the contrary. Whereas the domestic assets have been stable (decline since beginning of 2008 at 13.9%, just 0.1% worse than in August), the private foreign assets are now down by 28.1% since Jan. 2008, a further decline of 2.2 percentage points. This equals a net decline of more than SFR 20 bn between August and November 2009. In addition, there might be quite a bit of foreign private wealth invested in instituional vehicles like trusts which is not even tracked in this statistic.

Potentially, there could be other reasons for this decline than net money outflow across the border. Yet, it is hard to explain why foreign assets are persistently declining while domestic assets stay relative stable.

Today there is also a analysis on Wealth Bulletin which confirms our data. Wealth Bulletin finds the same trends across many offshore destinations in Europe.

We find that this trend is quite frightening from the point of view of Swiss competitiveness. As we said before, it is the eleventh hour for a change of strategy.

Again sensitive bank data on offshore-accountsgot stolen. Again these information are offered to the government of the account holders. Again the government seems to be willing to bend the law and to pay for these illegally acquired data.  In our recent analysis on data theft we preditcted that these kind of “private banking data auctions” will happen again and again untill the stolen assets become worthless.

Whistle blowing, breach of confidentiality, and the outright theft of files recently has been enormously popular among some employees of offshore banks. It is almost impossible to stop such individuals. They have the potential to completely destroy the reputation of financial centers like Liechtenstein, Luxembourg or Switzerland, and a lot of damage has been done already. If there are no more potential buyers for confidential customer files the business is gone. But this would be only possible when the banks convert offshore to onshore customers. Or, alternatively, show the door to all customers who are unwilling to co-operate.

Yesterdays reports on an employee of HSBC Private Bank in Geneva, stealing data of up to 3,000 French people suspected of holding Swiss bank accounts to avoid paying tax in France and turning them to the French authorities underlines why offshore banking faces a dead end: Offshore clients will loose all trust in their providers.

It is one thing that US and European authorities use all legal and illegal means to get hold of data on offshore accounts of their citizen. But it is another issue that obviously the banks have not established sufficient security routines to protect their confidential data. In this case, the employee supposedly “hacked” into the HSBC client database after foiling its security system. I am wondering how difficult this really was, given that for instance the contact form on the website of HSBC Private Bank is not even encrypted by the absolutely standard  https-protocol. If privacy and data protection is already handled in such a reckless matter on the website it tells you something about the overall security standards.

To be fair: It is not only HSBC having such low security standards for their website. Wait for our new report on Private-Banking-Websites due next week providing more examples on poor security standards.

Today we read in Wealth Bulletin that Monaco will be the only offshore survivor among the small offshore havens including Liechtenstein, Andorra, Channel Islands and Gibraltar. The reason would be that Monaco has the “glamour factor”:

“Monaco might no longer have the mystique it did in the 1960s and 1970s when Princess Grace and Prince Rainier III held sway, but it still sparkles with glamour. In the debates over how various tax havens and off-shore centres will fare now that global governments have turned their attention to “black money”, this glamour is Monte Carlo’s X-factor, the overlooked detail that is likely to ensure its survival.”

We beg to differ.  Monaco has always played a minor role as offshore heaven (compared with say the Channel Islands). It is more interesting as the residence of choice for the rich because of zero income tax. What will ensure the survival of a wealth management center once managing offshore money has lost its appeal is only the quality of service and the performance of its wealth advisors. We doubt that Monaco banks can compete with Liechtenstein or the Channel Islands in this respect.

The New York Times discusses a new study about the effect of the financial crisis on the wealth of  top-investment-bankers. Yes, you guessed it right: The impact is rather small. Everybody can still keep those luxury condos, yachts, and expensive paintings (the exception being Bernie Madoff…). The study says that

“… it is an urban myth that executives at Bear and Lehman were wiped out along with their companies. Though the chiefs at both investment banks lost more than $900 million in their stock holdings, the professors argue that it is important to also consider all the riches the bankers took off the table in the years preceding the crisis.At Lehman, the top five executives received cash bonuses and proceeds from stock sales totaling $1 billion between 2000 and 2008, and at Bear, the top five received more than $1.4 billion, according to the study, which was released on Sunday night.”

Not very surprising, you might think. But if you put this situation in a historical context, you should think back to the days when all the big investment banks were private partnerships and a bankruptcy would indeed wipe out the personal wealth of the partners. Just consider how much things have changed over the last 30 years or so:

Prior to 1970, all NYSE members had to be partnerships (and in those days, stock brokerage provided the bulk of industry earnings). That meant partners had their wealth tied up in the firm. The line at Goldman was that partners lived poor and died rich. (….) Moreover, if a firm went bankrupt, as Lehman did, the partners were personally liable. The creditors could seize their personal wealth. And those pay based incentives DID matter. Goldman was incredibly risk averse, both from a legal standpoint and in how it was cautious about deploying its capital (that does not mean it was not greedy, please, but was greedy in ways that had low odds of hurting its franchise).

I guess if we want to avoid another financial disaster we have to somehow get these 1970s kind of incentives back into pay packages…