Tarnished lion of Swiss banking to roar no more
By Emma Thoasson and Katharina Bart
ZURICH, Thu Dec 22, 2011 Dec 22 (Reuters)
The Dom Perignon is still flowing at the exclusive Bar al Leone that is a regular haunt for employees of Switzerland's oldest bank brand. But the men in tailored suits are more likely to be drowning their sorrows than toasting a new deal.
Credit Suisse Group AG will integrate private bank Clariden Leu into its organisation next year, ending the 250-year-old Leu name along with its lion logo and cutting 550 jobs to save an annual 200 million Swiss francs ($220 million).
"What saddened me was the loss of a strong brand which many people had a strong emotional attachment to and expectations of," said Ronald Wildmann, former head of brokerage research at Bank Leu and now a partner of asset manager Basinvest.
The demise of the bank, whose roots go back to 1755, makes it the highest profile casualty of a global attack on Swiss bank secrecy in recent years. It also marks the failure of Credit Suisse's attempts to merge its five independent private banks.
Clariden Leu had been struggling to forge a new identity since it was formed in 2007 by the merger of Clariden Bank, Bank Leu and three other private banks owned by Credit Suisse.
"Over 250 years of tradition. And just as much experience," the bank proudly proclaimed in a brochure its wealthy clients could peruse as they waited on cream-leather armchairs - not that the bank made a habit of keeping them waiting.
Revelations in U.S. courts of improper practices by Swiss bankers, German criminal investigations and the discovery of dictators' loot stashed in Swiss accounts have been punishing to the country's $2 trillion offshore industry, and particularly painful for dozens of smaller private banks like Clariden Leu.
That is causing a quiet revolution in the industry as rich foreigners pull funds from secret accounts in Zurich and Geneva, prompting big players to gobble up smaller rivals and undermining the personal touch that is the pride of Swiss private bankers.
"We could close our eyes and hope the good old times come back but we're not going to do that," said Hans-Ulrich Meister, the chief executive of Credit Suisse private banking when he announced the end of Clariden Leu last month.
"There have been brutal changes in the environment."
BANKER TO EUROPE AND BEYOND
For centuries, Switzerland has been the favoured banker to the wealthier citizens -- and rulers -- of neighbouring Germany, Austria, France, Italy and beyond, its neutrality and stability big draws at the heart of a continent repeatedly torn by war.
When Johann Jacob Leu -- later mayor of Zurich -- set up Leu et Compagnie bank, its deposits and bonds were stored in an iron chest at the town hall with three locks that could only be opened when a cashier and two other "key-masters" were present.
Among its first investments was Bank of England bonds, but it pulled back from these in the late 1770s over concern about financing Britain's attempt to hold onto her American colonies, an official history of the bank shows.
Its early customers included Empress of Austria Maria Theresa and her son Joseph II, German counts and the French monarchy.
While Switzerland's bankers lost investments in conflict abroad through the 19th and 20th centuries, the neutral state quietly accumulated wealth and built a reputation for discretion and reliability.
That success is reflected in the neo-Gothic grandeur of the new headquarters Bank Leu built on Paradeplatz at the heart of Zurich's financial district in 1913-15 as Swiss industry and banking kept on growing.
The building at number 32 on the exclusive Bahnhofstrasse shopping street, guarded by lion gargoyles, houses a chandelier-decked hall of marble-clad bank counters where you can imagine suitcases of cash changing hands.
There, the "Lions" of Swiss banking competed with the "Bears" from rival bank Julius Baer for almost a century.
"How clients were greeted in the beautiful counter hall and reception rooms created an extraordinary atmosphere," said one asset manager at an independent rival.
"My customers have asked me where they should go instead. They don't want to move to a big bank like Credit Suisse. They really valued the special treatment at Clariden Leu, in particular the confidentiality and the discretion."
BUNKER MENTALITY OVER BANK SECRECY
Switzerland's centuries-old tradition of protecting the identity of its clients was cemented in bank secrecy laws of 1934 as the country sought to protect clients after a scandal over French dignitaries hiding their money in Swiss accounts.
Those laws helped Switzerland become the world's biggest offshore centre and banks like Leu grow well beyond what would have been possible if they had just focused on the relatively small, albeit wealthy, Swiss market.
That helps explain why the Swiss are fighting so fiercely to hold onto what remains of bank secrecy after the country was forced to bend its laws by cash-strapped governments worldwide hunting their rich, tax-evading elites.
When a left-wing historian researching Swiss involvement in the financing of the slave trade requested access to Bank Leu archives last year, Credit Suisse turned him down, citing the need to protect the identities of long-dead clients.
"What did they have to hide? They were making fools of themselves," said the historian, Hans Faessler, pointing out it was already well known the bank helped finance the development of Danish slave plantations. "It was a bunker mentality."
Credit Suisse eventually relented after Faessler lobbied Swiss and U.S. politicians.
Faessler said banks have become hypersensitive after years of scandals and feared slave descendants would make restitution claims like those over Nazi gold and wartime Jewish assets in the late 1990s.
"Maybe this Bank Leu thing was just one little part of a greater story over bank secrecy that's going on for the past 10-15 years and will go on for another five years until we've forgotten there was ever bank secrecy," he said.
DAY OF RECKONING
Credit Suisse agreed in September to pay a fine of 150 million euros to end an investigation of its employees in Germany over allegations they helped its citizens dodge taxes.
It is also the target of a formal U.S. tax probe, and a number of current employees and former employees have been charged with helping U.S. citizens evade taxes.
The Swiss government is negotiating to get the investigation dropped in return for the likely payment of a hefty fine and the revelation of client names, as it did with UBS in 2009 when it agreed to hand over data on some 4,450 of the bank's clients.
It was in that context that Credit Suisse and Clariden Leu recently wrote to their U.S. customers to warn them they could be forced to surrender their bank details to the authorities.
Switzerland struck deals this year with Britain and Germany that would allow their citizens to pay taxes on secret accounts without revealing their identities, although these are being challenged by the European Commission which wants to force Switzerland to accept an automatic exchange of bank information.
It all adds up to a gradual erosion of bank secrecy that is prompting wealthy U.S. and European clients to withdraw billions of francs of assets from Switzerland, particularly painful for a bank like Clariden Leu which had a strong customer base in Germany dating back to the 19th century.
"Bank secrecy is not sustainable. Probably the day of reckoning has come and in a few years we will have automatic exchange of information. They are fighting a rearguard action at the moment," said Boris Zuercher of thinktank Avenir Suisse.
Christoph Bircher, a headhunter from Odgers Berndtson, said the failure of Clariden Leu was a wake-up call for an industry still selling an illusion of exclusivity that is really only on offer to the ultra-wealthy and at private partnership banks.
"UBS or CS or Clariden Leu. They are all set up the same. On the outside it's a private bank but it is just a subsidiary of a big bank," he said. "Strictly speaking, a private banker should manage their clients' wealth and stake their own money."
It is that special, personal touch that was lost when Credit Suisse bundled the Leu and Clariden banks with three others in 2007.
"The merger in 2007 was the first shock for us. I found it absolutely idiotic at the time, because Clariden people were different from Leu people -- they were two different cultures," said Alex Hoffmann, Clariden Bank chairman until 2006.
"And after the merger, Clariden Leu didn't have any authority over its own decisions anymore. A big part of the freedom we had enjoyed was lost, and that was very demoralizing."
The survivors of the shake-up are most likely to be the small niche players and the big banks like UBS, Credit Suisse and Julius Baer, which are making up for withdrawals from U.S. and European clients by expanding aggressively in emerging markets to cater to their growing ranks of millionaires.
Fortunately for the industry, Swiss banks can still appeal to their age-old advantage of being based in a country that is a relative island of stability in a continent once again racked by turmoil, this time over euro zone debt.
"I'm not so pessimistic. It's a challenge for everybody but Switzerland has shown in the past it has the capacity to adapt," said Claude-Alain Margelisch, chief executive of the Swiss Banker's Association.