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Three years after Lloyds Banking Group Plc sold its private bank in Geneva, the only signs of life at the now-empty building are piles of cigarette butts and nutshells lying on its dirty window ledges.
The riverside offices at Place de Bel-Air are a short walk away from the remaining private banks, hedge-fund managers and luxury-goods stores in the heart of the Swiss city. The locked entrance, where millionaire clients used to come and go, is a reminder that some of the biggest names in global finance have quit Geneva for good.
“The disappearance of international private banks has left an eerie silence in some of the downtown offices that were once the top end of the market,” said Raphael Reginato, who works in the city as a broker at real estate asset manager AMI International. “Geneva’s not the magnet for international finance it used to be.”
North American and European banks are quitting Geneva as companies battle with the loss of financial secrecy, the strong Swiss franc and pressure on profitability from low interest rates and tougher regulatory demands. Tax probes by the U.S. and France and a new system of bank-data exchange between governments have scuppered the traditional “no-questions-asked” approach to serving rich clients who reside in other countries.
“Everybody is expecting the number of banks in Geneva to contract even further,” said Stephane Muller, a partner at Ernst & Young in Geneva. “Fortunately, some of the local family-owned firms still have the appetite to buy them.”
The canton of Geneva derives about 17 percent of its gross domestic product from financial-services companies, according to the local industry group. That contribution is at risk after the number of banks declined to 119 in 2015 from 140 in 2008, and the industry’s workforce shrunk about 9 percent in the past three years.
The cuts are affecting everything from real estate to hotels. Bank employees now make up a quarter of the corporate overnight guests at the five-star Grand Hotel Kempinksi, half the level of 18 months ago, and room rates for business customers have fallen by about 10 percent, General Manager Thierry Lavalley said in an interview.
“People no longer need to come to Geneva to check their bank accounts,” Lavalley said. “There are fewer business trips.” The Four Seasons Hotel des Bergues is also seeing fewer bookings from financial companies, according to Fabrice Thome, director of sales and marketing.
Fewer visitors are traveling from France and Italy following the end of banking secrecy, said Eric Kuhne, a member of the board of the three-star Hotel Astoria, which is located in front of the central Cornavin train station. Both the Kempinski and the Astoria now take more bookings from visitors for diplomatic talks and other conferences taking place in the city, Lavalley and Kuhne said.
About 31,000 square meters (334,000 square feet) of prime commercial real estate around Place de Bel-Air is unoccupied, roughly the same as four soccer fields. Since 2011, the canton of Geneva’s office-vacancy rate has more than tripled to almost 8 percent, the highest in 10 years, according to AMI. That’s pushing down the highest prices in the center of the city, the firm said.
Lloyds vacated its Geneva building after selling its international private-banking business to Union Bancaire Privee. On the opposite side of the Rhone River are the empty former offices of Coutts International, a business acquired by UBP last year from Royal Bank of Scotland Group Plc. The next tenant won’t be a financial company, according to Reginato, whose company is advising on the lease.
Once a hub for hidden European and American assets, tougher scrutiny on the real ownership of assets and more stringent reporting standards have made offshore private banking in Geneva less profitable.
Bank of America Corp. sold its Merrill Lynch international-wealth businesses to Julius Baer Group Ltd., while Royal Bank of Canada divested its Geneva business to local firm Banque Syz SA. Morgan Stanley sold its Swiss wealth business, also based in the city, to the private bank and asset-management firm owned by billionaire Joseph Safra. Goldman Sachs Group Inc. plans to close a Geneva branch with 18 employees to streamline its operations, a person briefed on the situation said in March.
It’s not only foreign banks that are shrinking. UBS Group AG, Switzerland’s largest lender, is closing its capital-markets business in Geneva and shifting about 10 jobs to its headquarters in Zurich, according to three people familiar with the matter. The bank declined to comment.
Tax authorities worldwide are still poring over a client database stolen from HSBC Holdings Plc’s Geneva private bank by former information-technology worker Herve Falciani a decade ago. Client assets managed by the British lender in Switzerland slumped after it overhauled compliance and risk controls.
The shake-up has created opportunities for Pictet & Cie. Group SCA, Geneva’s biggest bank, to hire from outgoing competitors, according to a company official who asked not to be identified in line with policy. Pictet’s headcount in Geneva climbed about 10 percent to 2,204 in the two years through 2015, according to the official.
While HSBC announced 260 jobs cuts last year as it modernizes IT systems, the company has repeatedly said it’s committed to keeping a private bank in Geneva. Barclays Plc and JPMorgan Chase & Co. have also pledged to keep their private banks in the city.
ING Groep NV, the Amsterdam-based lender that sold its private-banking operations in Geneva to Julius Baer in 2009, is expanding in Geneva to become a major player in trade finance, an area once dominated by BNP Paribas SA. The French bank was hit by a record $8.97 billion fine in 2014 for violating U.S. sanctions against Iran, Cuba and Sudan through transactions often executed from its Geneva office.
Unlike some other Swiss cantons, Geneva has retained many of its tax breaks for affluent foreign nationals and it’s still an attractive place for them to visit, according to Alexandre Toussaint, managing partner at AppleTree Asset Management SA, which advises rich families on their assets. Some wealth managers need to modernize to keep that business, he said.
“Many of the banks are really stuck with the compliance and regulatory issues and they can’t focus on developing new business,” said Christian Hintermann, a partner at accounting and advisory firm KPMG. “The first quarter of 2016 was more difficult than ever before, except perhaps the middle of the financial crisis.”
Swiss banks have paid more than $5.5 billion in penalties to the U.S. Department of Justice in an investigation that has shown how they helped American clients evade taxes. Switzerland is the biggest offshore financial center with $2.3 trillion of assets, according to Boston Consulting Group.
“There is still undeclared business all over Geneva,” said Lorne Baring, chief executive officer of B Capital SA, a U.K.-Swiss multifamily office. “The banks have got to lose that business, or make it compliant. It’s going to get harder to make these businesses more profitable.”
By Giles Broom (Bloomberg)