Last week, Wegelin & Co, tracing its origins to 1741, was sold into a Swiss business - Notenstein Private Bank - of Raiffeisen for an undisclosed sum. The move comes the in face of threatened actions by the US authorities against Wegelin & Co, which is a private partnership bank, for allegedly aiding US tax evaders.

“I have no doubt at all that we will continue to see consolidation in the private banking world, not only in Switzerland but in many key markets globally,” Philip Marcovici, a retired lawyer, said in emailed comments on the matter. (Marcovici is a member of this publication’s editorial board.)

“The reality is that the service and pricing model of the past no longer works – even the biggest banks cannot serve clients from every country, as wealth management increasingly requires an understanding of the real needs of clients – needs driven not only by the tax laws of their home countries and countries of investment, but by many other factors that are country-specific,” he said.

The stakes for such Swiss banks are high. The entire financial sector in the Alpine country accounts for about 12 per cent of GDP. According to Booz & Co, the US consultancy, disclosure agreements between Switzerland and the UK and Germany last year will see the Swiss financial sector losing around SFr47 billion ($51.1 billion) in assets and a total of SFr1.1 billion in revenue. Offshore assets under management by the Swiss financial sector stood at SFr2.050 trillion at the end of 2010. Even if a small fraction of this money leaves Switzerland, that translates into a big figure.

Marcovici said the Wegelin & Co management will be rueing their recent plight. “The situation of Bank Wegelin is one that could and should have been avoided, but sadly there are still many in Switzerland and elsewhere who, instead of embracing a changing world, fear a changing world and seek to defend the past. A lack of strategy and vision for any single bank or for any financial centre is dangerous,” he said.

Not just US

Although the saga may give the impression that the US is pushing other countries’ banks around, that is not quite the right message to draw from this affair, Marcovici said.

“The reality is that the move to tax transparency is not something that involves only the US and its particular way of putting pressure on the private banking industry. The move to tax transparency and compliance is a global one, and is a positive move that aligns with an overall shift to a world of greater ethics and fairness. The issue of bank secrecy and its historical misuse is not something restricted to Switzerland, but the way in which Bank Wegelin handled its travails with the US only helped to fuel Switzerland’s apparent desire to make a global problem its problem,” he said.

When the story broke earlier in January that Wegelin & Co had a US problem, the bank issued what was, by the standards of the industry, a blunt press release, denying the US action threatened its very existence or would cause serious market disorder.

As reported earlier in January, Wegelin & Co, which is based in St Gallen, is a limited partnership led by eight managing partners with unlimited liability, employing over 700 staff at thirteen branches throughout Switzerland. It manages more than SFr24 billion of client funds.

The partnership structure was not a vulnerability in light of the US action, the statement had said, and posed no immediate threat.  

Marcovici also reiterated that it is wrong to assume that clients worried about losing secrecy could get a secure home for their assets further east, such as in Singapore. The regulatory boss of the city state, Ravi Menon, has issued tough messages on tax compliance.