UPDATE: Vontobel Eyes Profitable US Wealthy Client Arm By '14
23 February 2011 - 10:46PM
Dow Jones News
At a time when most Swiss private banks are shrinking from
serving wealthy Americans because of the U.S.'s hot pursuit of
alleged tax evaders, Vontobel Holding AG (VONN.EB) said Wednesday
it expects a new unit for U.S. clients to turn a profit in two to
three years.
The Zurich-based bank launched Vontobel Swiss Wealth Advisors
several months ago, hiring roughly eight client advisors from far
larger rivals UBS AG (UBS) and Credit Suisse Group (CS), and has
already booked initial inflows, Vontobel Chief Executive Herbert
Scheidt told Dow Jones Newswires in an interview.
Hoping to a benefit from rivals like Bank Sarasin & Cie AG
(BSAN.EB) and Julius Baer Group AG (BAER.VX) exiting the business
of U.S. clients before or shortly after the Internal Revenue
Service began its pursuit of UBS AG (UBS), Vontobel launched the
unit last fall, registering with the Securities and Exchange
Commission.
"Offshore banking is morphing into a more contemporary version
of cross-border and onshore financial services with far higher
regulatory requirements, and banks must know the individualities
and specifics of each country they operate in, inside and out," CEO
Scheidt said Wednesday after the bank reported a 6% rise in
full-year net profit.
He declined to disclose how much of the CHF1.2 billion of the
firm's private banking net new money last year can be attributed to
the U.S. unit, which is being built up at a location separate from
Vontobel's broader money-management activities, underscoring the
tightrope Swiss banks must walk in dealing with U.S. clients as
scrutiny of cross-border business intensifies.
"I don't even have a key [to their office]," Scheidt says.
The U.S. clinched a big win against Swiss banking in general
through its pursuit of Swiss giant UBS, which ultimately admitted
to aiding U.S. clients hide assets through hidden Swiss offshore
accounts. UBS paid $780 million to settle a criminal suit and
agreed to hand over more than 4,000 sets of client data in a
separate civil suit brought by the IRS.
The IRS, which estimates the U.S.'s lost tax revenue at $100
billion, has gathered money trails from around the world after more
than 15,000 Americans came clean on their foreign accounts. While
pursuing UBS, the IRS also set up disclosure programs which dangled
incentives to taxpayers, such as promising to go easier on them for
coming forward voluntarily.
The case rocked Swiss banks, which quickly began re-examining
their business with U.S. clients. Some of them, including
privately-held Pictet of Geneva, still cater to U.S. clients in a
similar SEC-regulated set-up as Vontobel does.
Bucking the trend, Vontobel's Scheidt--set to step down as CEO
and become chairman of the bank in May--says he could see doubling
the size of the unit from currently 15 employees, depending on how
its business develops.
However, the bank must prove it can consistently win assets from
U.S. clients--and isn't just benefiting now from funds shifting
because of the massive scrutiny over accounts held outside the U.S.
CEO Scheidt said initial net new assets are a mix of internal and
external funds, meaning existing and new clients.
Details on how profitable the business can be are also sketchy,
but anecdotal evidence suggests it will far below the more
lucrative offshore Swiss banking business.
"It's a good move for Vontobel because it diversifies their
private bank, but I don't think it can match the offshore business
because it carries high costs and requires intense attention to
regulation," Bank Sarasin analyst Rainer Skierka says. He rates the
stock at reduce in part due to Vontobel's failure to successfully
expand its private bank to offset the dominance of its investment
bank.
In expanding the U.S., Vontobel is adopting a sharply contrarian
tack to rivals like Sarasin, Julius Baer and VP Bank (VPB.EB),
which are pouring money into opening offices in promising new
markets such as Asia. Wednesday, Vontobel said it wouldn't consider
entering Asia, which it termed risky, until existing onshore
initiatives including Germany and Austria can turn a profit.
Vontobel has long been criticized by analysts including Skierka
and Helvea's Peter Thorne for relying on the securities unit, which
has a flourishing derivatives business, for profits. Earlier
Wednesday, Vontobel said it was holding its dividend steady at
CHF1.40 a share despite reporting a 6% rise in full-year net profit
to CHF147.8 million, largely fuelled by the investment bank.
-By Katharina Bart, Dow Jones Newswires; +41 43 443 8043;
katharina.bart@dowjones.com