MyPrivateBanking Blog
Daily Comments on the World of Wealth Management

Archive for February, 2010

 

German Government Pushes for Kickback Transparency

Thursday, February 18th, 2010

The government of the German state (”Bundesland”) Baden Württemberg has started an initiative to force banks to disclose all kickbacks and commissions. The minister for consumer protection Peter Hauk (a member of the conservative CDU) said that he will soon bring this new regulation to the Bundesrat (the parliamentary chamber that represents the German states). The Minister encouraged the banks to support the new law because more transparency for banking clients will in the long-run strengthen the international competitiveness of the German banking industry.

The initiative is a logical next step after the new MIFID regulation has already compelled banks to keep written minutes of all client meetings detailing the recommendations that were made to the client. MyPrivateBanking research analysts expect that in the long run the reception of  kickbacks by banks and wealth managers will get completely banned.

 

Switzerland: Foreign Money Outflow Accelerates

Monday, February 15th, 2010

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.

 

Responsible Wealth vs. Responsible Spending

Monday, February 8th, 2010

A friend of mine has drawn my attention to an initiative called „Responsible Wealth”. It aims at the top 5% of income or wealth in the US that “care about economic justice” and asks them to donate some or all of the tax savings from the tax cuts of the Bush and Clinton administration to “tax fairness organizing”. This raises the question if the top 5% do not already pay a fair share of taxes already? To assess this question I looked at data of the Internal Revenue Service (IRS) to get a better idea of the role of the Top 5% in income generation and tax payments:

As it turns out in 2007, the top 5 percent of tax payers earned 37.4 % of adjusted gross income paid 60.6 % of all federal individual income taxes. In comparison to 1992 (when Clinton came in office) the Top 5% had a share of 28% of the total adjusted gross income and a share of 45,9% of all federal income tax. No shift in the relation between share of total gross income and share of tax paid during the Clinton/Bush era. Just for comparison: The bottom 50% of adjusted gross income in 2007 had a group share of 2.9% of income tax.

While “fairness” is always in the eye of the beholder and one can always argue about the “fairness” of single cases and tax cuts I do not see the overall point of the Responsible Wealth Initiative. If the top 5% of the taxpayers account for 60% of all tax payments and the bottom 50% for 2.89% I find it hard to argue that the wealthy do not already “care about economic justice”. Even more so when taking into account that the wealthy in the US spend each year between 2-3% of their investable assets for charity.

I fully agree that the living conditions of the poor can and should be improved, but for me it isn’t a matter of the wealthy being irresponsible, but instead, a matter of the government spending their huge amount of tax money responsibly. The solution to take more and more money from those who generate economic development in order to increase public spending and improve ecomomy is too populist and shortsighted. It would be much more useful for this purpose to demand more effective investments of tax receipts by limiting the influence of lobby groups, streamlining bureaucracy and thinking beyond the next election day.

 

World Cup and Wealth Management

Sunday, February 7th, 2010

south-african-fansThe Football World Cup will be kicking-off on June 11 in South Africa. I have spend the last couple of weeks criss-crossing South Africa and the expectations for the impact of the World Cup are skyrocketing. No doubt, the country has already achieved a lot in preparing for the mega event. The stadiums have been finished in time, security has been tightened and everybody is discussing the chances of Bafana Bafana (the SA football team) reaching the semi-finals or even winning the tournament. There are also high expectations that  the World Cup will bring wealth and riches to the country. It would be a much needed boost as the economy has been hit in the short-term by the economic down turn. Hotels, restaurants, entrepreneurs of all types expect to be showered with the money foreigners will bring into the country. It may be that those expectations are disappointed. Ticket sales in Europe have been sluggish so far and the experience of Germany in 2006 and Switzerland/Austria (European Cup) in 2008 show that there was no short-term break even given all the funds that had to be invested.

However, the positive long-term effect of the World Cup can hardly be overstated. South Africa has the opportunity to display itself as a showcase of a successful emerging market on the African continent. Over the last 10 years entrepreneurship has started to take off and is thriving, also and particularly in the black townships around the country. The number of USD-millionaires in South Africa has more than doubled to about 50′000 over the last three years and is expected to keep rising sharply over the next decade. Neighboring countries like Mozambique and Angola boast their own small Wirtschaftswunder which makes the region of Southern Africa also an interesting emerging market for Wealth Managers. Yet it seems that especially European Private Banks have only little interest in the black continent as they are busy hunting in the Middle East and Asia. It is mainly South African local banks, some UK players, Chinese banks and Arab banks who are trying to gain a foothold among the new entrepreneurial class in Africa. Speaking to successful business people in South Africa the brands of UBS, Deutsche Bank, or BNP Paribas are rarely household names. May be the World Cup could be an opportunity for the European Wealth Managers to scout this region on the rise. So, get up from your desks in Geneva, Frankfurt, Paris and Zurich, pick up some VIP tickets, invite  your clients and make the trip to Africa.

 

Meeting Jim Rogers

Friday, February 5th, 2010

Yesterday I attended a conference with Jim Rogers, co-founder of the Quantum Fond (together with George Soros) in the seventies, founder of the Rogers Commodities Index, author of various books on commodities and one of the strongest advocates for commodity investments. He certainly has an exceptional investment record and even it is no guarantee for the future following a summary of his outlook for the decade(s) to come:

Favourite Commodity

Currently he is very bullish for agricultural commodities. He predicts a huge shortage to come, since prices are depressed since years, no investments in more farmland have been undertaken and the silos are close to empty. He regards farmer as the big winners of the next decade. He would buy precious metals on dips and predicts that Gold will be double by end of the decade.

Future Role of Commodities

Not surprisingly he regards commodities as the best investment no matter how the economy will develop. In the case of a new boom the demand for commodities (and prices) will go through the roof because the supply site can not grow as fast. If the economy goes down he is certain that the governments around the world will continue to frantically print money. As a consequence the value of real assets such as commodities will increase.

Role of China:

He regards China as the upcoming economic and political superpower, however, pointed out that the GDP of china is still only 10% of the combined GDP of USA/Europe, so investors need patience. He thinks that the China acts strategically far smarter than the US, buying assets (mainly mines, oil/gas fields) all over the world while the US has only one focus: Printing money.

Relations USA and China

In his opinion China needs the US as much as vice versa. However, historically politicians of a superpower challenged by a growing challenger behave irrational so he foresees more frictions to come.

Timing

He never made good experiences with timing and has given-up on it. If he buys an asset he plans to hold it “forever”. He only will start to sell if everybody has commodities in his portfolio and people talk about pork bellies on the street. In his view commodities are far from a bubble and China (except real estate) as well. Main argument is that the actual exposure to these asset classes in the investor portfolios is still comparatively low.

BTW: Rogers moved to Singapore, because in his view Asia is on the development stage of the US at the beginning of the 20th century and he wants to be where the action and future is. So given his background and interests (of promoting his commodity index) no surprises, but he made quite a good case for his view.

 

Groundhog Day Again

Tuesday, February 2nd, 2010

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.

 
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