In the near future, Hong Kong and Singapore will overtake Switzerland as the world's largest wealth and asset management center.
The world of big money is about to change. Rich, super-rich and ultra-high-net-worth individuals (UHNWI) continue to lose confidence in the Swiss banking system and are looking for a way out. According to the Boston Consulting Group, by 2029, Hong Kong and Singapore will overtake Geneva as the leading international wealth management center.
The collapse of Credit Suisse Group AG (CS) in 2022-2023 and the decision of the Swiss Financial Market Supervisory Authority (FINMA) to write off all of the Group's AT1 bonds, worth CHF 16 billion, in order to save CS sent shockwaves through the financial sector worldwide. Although it was a severe test for the Swiss banking system, it did not sound its death knell.
The Swiss authorities were able to mitigate the consequences of this failure effectively, if not quickly. As part of the extraordinary government aid program, Credit Suisse was taken over by UBS Group AG, making the latter the market leader. There are other private banks in Switzerland, such as Julius Baer, Pictet, Lombard Odier, etc., that offer similar services. So Switzerland still has a lot of potential to attract wealthy clients.
However, the market situation is unlikely to bounce back to where it was. The Alpine republic's reputation has been damaged by its submissiveness to external pressure and its indiscriminate use of sanctions.
Bern failed to resist pressure from Washington and Brussels and agreed to disclose bank account information, including the name of the owner and other personal details. In doing so, the Swiss authorities publicly admitted that their famous banking secrecy would no longer remain inviolable.
Swiss banking secrecy has been a hallmark of Switzerland and a guarantee for UHNWI and super-rich clients for decades, if not centuries. But gone are the days when the wealthy could hide their assets in Swiss banks away from the prying eyes of the IRS or other tax authorities. The Alpine republic is no longer a safe haven for capital.
Another critical issue that undermined client confidence in Swiss banks was country leadership’s decision to join the sanctions against Russia. This was done in the most clumsy and unselective way possible. The freezing of Russian state and private assets was the second very important warning signal for wealthy clients.
The Swiss banking system had been the undisputed leader in offshore wealth management for many decades. It was believed that these accounts were absolutely safe and could be managed with ease and in the most user-friendly manner.
However, when Russian assets were frozen. It became clear that the Swiss authorities would not only disclose all information about their bank clients, but could also make it difficult for them to access their capital, or even freeze it at the request of a third party. The bundle of rights of money owners is no longer properly protected in Switzerland. Such indiscriminate actions have severely damaged the country's image worldwide and forced UHNWI and super-rich clients to move their capital to competing jurisdictions.
Hong Kong and Singapore are becoming more attractive as financial centers. Their banking institutions are already on a par with Swiss banks, but are showing very impressive growth.
The COVID-19 pandemic gave them a significant boost, as they were able to offer their clients consistent access, mobility and ease of capital management, attracting wealthy clients and triggering the return of big money from Europe to Asia.
Bern's imprecise and politically motivated actions drove UHNWI and super-rich clients out of the Swiss banking system. Now they are migrating to Asia's financial centers.
Switzerland has punished itself for being unable to withstand political pressure and for joining sanctions against Russia. Yet the worst is still to come, especially now that the Swiss neutrality status is being questioned in the Confederation. Indeed, a good reputation is hard to gain, but easy to lose.
Asia has taught Switzerland a lesson of political pragmatism. It is no wonder that Asian financial centers are forming a line to welcome big European capital.
