The Demise of Swiss Private Banking is Premature

Future of private bankers under the microscope ... With the demise of Wegelin and planned ownership changes at Pictet and Lombard Odier, the number of traditional, family-run private bankers in Switzerland is shrinking from a Second World War rate of around 60 to just nine. The world of private banking faces an evolving landscape. The rate of new wealth creation in emerging economies eclipses that of Europe, volatile markets offer less returns and the global crusade against tax evasion has eroded banking secrecy. Many observers fear that the rarified atmosphere of the small, discreet family boutique in Switzerland has become too noxious for the breed to survive. – Swissinfo

Dominant Social Theme: Private banking, who needs it?

Free-Market Analysis: The world's top elite families have stored their gold in Switzerland for a long time, hundreds of years. And during that time, Swiss private bankers have served this vast Money Power with discretion and courtesy.

Swiss private banking is not going away, no matter what anyone thinks, or in this case (see above) prognosticates. We wrote an article yesterday about the technocratic bent of Switzerland's largest banks – and how it constituted a disturbing trend. But that is probably the exception that proves the rule.

Those banks represent what is wrong with Swiss banking. But Swiss private banking has long proven that it has a better – and more marketable – set of services. Services that have proven exceptionally compelling in this age of government overreach.

What happened, so far as we can tell, is that too many of the hoi polloi started using the Swiss model of bank secrecy and efficient service. And thus, a shakeout was propounded. What is appropriate for top elites is not for you.

Two firms were invented ... UBS and Credit Suisse. These firms, contrary to the tenets of private banking, expanded around the world and applied Swiss banking practices not just in Switzerland but throughout the West.

They pointed a metaphorical gun at private Swiss banking generally because it was inevitable that Swiss secrecy would contravene Western tax collection. And that is just what happened. The trigger was pulled. Swiss banking was wounded.

UBS in particular was too big to fail, however. Rather than shut down UBS, the Swiss government negotiated. And continued to negotiate. And UBS negotiated, too, and Swiss banking confidentiality was broached.

Which was the plan all along?

The elites like their secrecy – but for themselves. They'll keep their secrecy. The rest of us ... well, we're less secure. The privileges of top money have been reclaimed. Money Power remains inviolable and above the law. It's their country, not yours.

Drive through Switzerland. It is like a Hollywood stage set, so near and clean – and wealthy ... This is a country created and supported by Money Power. Here's more from the article, excerpted above.

There are no ostentatious displays of wealth at Switzerland oldest private bankers, Rahn & Bodmer. Clients do not wade through plush carpets under the gaze of gilded oil portraits when they enter the Zurich premises. Instead, the bank exudes an aura of calm, understated efficiency that conceals the drama and volatility of the 263 years of history that the family firm - and generations of its clients - has lived through.

One of the bank's most successful calling cards is that its five partners accept unlimited personal liability for losses. This is a condition for earning the title of "private banker" (as opposed to private bank) in Switzerland – a distinction so valuable that the term was copyrighted by the Swiss Private Bankers Association (SPBA) in 1997.

"Clients appreciate that the partners will take the upmost care to ensure that the business model can bring no possible harm to the bank," Christian Rahn told swissinfo.ch. "This leads to a more risk adverse, conservative strategy than other banks."

Until last year, Rahn & Bodmer was Switzerland's second oldest private banker. That all changed when the previous record holder, Wegelin, fell victim to modern times - savaged into oblivion by United States lawyers for helping clients evade taxes.

While the rump of Wegelin will still exist until the legal process has been completed, the once proud St Gallen business - founded in 1741 - has ceased to function as a bank.

The fate of Wegelin's partners - who could lose their shirts in US fines – might have prompted two other Swiss private banking heavyweights - Pictet and Lombard Odier – to turn their backs on the unlimited liability private banker model, according to many observers.

This is the issue, then, for Swiss private banking – how to adapt to the times. Wegelin was sacrificed. Bad luck. Closely held family businesses may seek different structures to avoid liability. And some of these new structures may compromise the fundamentals of private Swiss banking.

But there is need for private banking. The really big money needs it – and Money Power may bank in the Americas and in Asia, too, but Switzerland will remain. No one knows for sure how much of the world's wealth is deposited in Switzerland in gold, silver and currency but it is a huge chunk. That's Money Power money. Trillions and trillions.

It's not going anywhere and neither is Swiss private banking. The top elites are just making it more difficult for others to have the same access and services they do.

Don't write off the Swiss – or their banking. It's a powerful and compelling business that's been around a long time.

Conclusion: It may change but it's not going away.