Switzerland’s surge as a safe haven for Gulf investors after the Arab Spring has stalled, according to Eduardo Leemann. The CEO of Swiss-based Falcon Private Bank said the country has attracted a glut of bad headlines in the last year and wealthy GCC individuals have lost faith.
He said: “Investors are asking, is this Swiss bank the safe haven I was hoping for? Tax issues with the US and Europe mean the Gulf high net worth investor is more careful than he was. Plus, authorities in the West are quicker to ask questions about your balance sheet, capital ratios and off-balance sheet assets, which they never did previously.”
Switzerland has long dominated the private banking industry, with its tradition of secrecy dating back to 1934, when it became a criminal offence for employees to pass on information about clients’ accounts to a third party, even government tax inspectors from other countries. After years of turning a blind eye to their wealthiest citizens hiding riches in such tax havens, cash-strapped governments in the post-crisis world have been searching for spare revenue.
Switzerland has been one of the first places they have looked.
In May, the US department of justice charged the country’s oldest private bank Wegelin & Co. with helping Americans evade taxes on more than $1.2 billion in assets.
Much of Switzerland’s appeal lies in its discretion, but it seems a lot of this has now been lost.
Dubai is now keen to step up as a private banking hub.
Falcon has been present in the region with its Dubai representative office since 2008 and has been owned by Abu Dhabi’s Aabar Investments since April 2009.
Leeman said the Eurozone crisis and Arab Spring has left investors risk shy.
“People in the Gulf are still yield-hungry, but their appetite for returns from a year ago has come down from between 15 and 20 per cent to eight to 10 per cent.
“There’s increased appetite for local bonds. The fixed income market in the region is producing solid returns and people are leveraging up, for instance the IPIC bond, up to eight to 10 per cent. For an AA-rated company it’s not a bad return.
“For the Gulf high net worth the Euro and financial crisis has hit home. They have a lot of assets in foreign countries, for instance it could just be homes in the south of France.
“The Gulf’s high net worth are more conservative in their outlook and have a different risk awareness. They are more careful on leverage, almost as a matter of principle,” he added.
As part of this trend, in January Leeman launched the Falcon Menasa focused fixed income fund to allow its investors abroader exposure to bond markets in emerging economies in the Middle East, North Africa and South-East Asia. Leeman warned though that GCC private banking industry is oversaturated, making it difficult to grow his business.
“Overcrowding in the Middle East has become a lot worse in the last 12 months. Everyone thinks they need to be in Asia and therefore Dubai as well. Also, the local Gulf banks, especially in Abu Dhabi, are expanding into private banking.”
The bank, formerly known as AIG Private Bank, was bought from the crippled US insurance giant AIG by Aabar in 2008 for 288 million Swiss francs (Dhs1.2 billion).
Falcon Private Bank has 40 years of wealth management experience, with branches and representative offices including Geneva, Abu Dhabi, Dubai, Hong Kong and Singapore.
State-owned Aabar purchased Falcon from American International Group in December 2008 after the insurer was forced to sell assets to repay a US government loan that saved it from bankruptcy.