Annual Report Association of Foreign Banks in Switzerland 2002 Organization Board Chairman Dr. Alfredo Gysi Chief Executive Officer, BSI Ltd., Lugano Deputy Chairman Reto A. Cavelti Managing Director and Senior Executive Officer for Switzerland, Citigroup Global Markets Limited, Zurich Branch, Zurich Deputy Chairman Peter Franz Braunwalder Chief Executive Officer and President of the Executive Committee, HSBC Republic Bank (Suisse) SA, Geneva Treasurer Paul Maibach Chief Executive Officer, Bank CIAL (Switzerland), Basel Claude-Alain Burnand Secretary of the Board of Directors, BNP Paribas (Suisse) SA, Geneva Eduardo Leemann Chief Executive Officer, AIG Private Bank Ltd., Zurich Brunello Perucchi Chief Executive Officer, Banca Popolare di Sondrio (Suisse) SA, Lugano Hans Peter Brunner Chief Executive Officer, Coutts Bank (Switzerland) Ltd., Zurich Dr. Christian A. Camenzind Chief Executive Officer, Bank Sal. Oppenheim jr. & Cie (Switzerland) Ltd., Zurich Bruno Meier Spokesman of the Executive Board, Deutsche Bank (Suisse) SA, Geneva Maurice Monbaron General Manager, Crédit Lyonnais (Suisse) SA, Geneva Auditors Heinrich Speich Chief Executive Officer and Chairman of the Board of Management, Bank von Ernst & Cie AG, Zurich Ermanno Bianchi Senior Vice President, PKB Privatbank AG, Lugano Henry Fauche Senior Vice President, Bank CIAL (Switzerland), Geneva Secretariat Dr. Martin Maurer Secretary General Raoul Würgler Deputy Secretary General Daniela Hess Mühlbauer Administration as of 30 April 2003 1 Portrait The Foreign Banks in Switzerland The Association of Foreign Banks in Switzerland The foreign banks in Switzerland are defined as: • Banking institutions structured according to Members of the Association of Foreign Banks in Swiss law and subject to Swiss bank supervi- Switzerland comprise foreign-controlled banks, sion, with a majority shareholder domiciled branches of foreign banks, foreign-controlled abroad or controlled by a foreign shareholder. securities dealers, fund managers and agents with They may be subsidiaries of foreign banks, majority shareholder domiciled abroad. The belong to foreign non-banking institutions or to Association was founded in 1972, and the secre- private persons. tarial offices are located in Zurich. • Legally independent branches of foreign bank- ing institutions, likewise subject to Swiss bank Number of member institutions supervision but with additional requirements. 100 foreign-controlled banks 12 foreign banks’ branches Foreign banks in Switzerland by legal structure 10 other financial service providers 99 subsidiaries of foreign banks (securities dealers, fund managers and 23 subsidiaries of foreign non-banking insti- agents, etc.) with foreign majority tutions and banks with private majority shareholder shareholder domiciled abroad 1 observer 25 branches of foreign banking institutions as of 31 March 2003 as of 31 December 2002 Apart from representing members’ interests The number of foreign banks in Switzerland toward the Swiss Federal Banking Commission, amounted to 147 as of 31 December 2002, so the Swiss National Bank and other state organs, that out of all the banks in Switzerland about the Association of Foreign Banks in Switzerland 41% are foreign-controlled. Most of the foreign participates in commissions and working groups banks in Switzerland are headquartered either of the Swiss Bankers’ Association, the Swiss in Zurich (71) or Geneva (48). Only Lugano is Funds Association SFA and other bodies. The otherwise significant in this respect (11), mainly Association of Foreign Banks in Switzerland is because most of the foreign banks in Switzerland competently supported in this work by numer- have a branch in the Ticino. ous representatives of its member institutes. The majority of the foreign banks focus on Further information on the Association, its activ- asset management for private clients (Private ities and the role of the foreign banks in Switzer- Banking), as well as investment fund business. land is available at www.foreignbanks.ch. However, various foreign banks offer additional products and are also active in other market segments, in particular commercial credit and trading, as well as corporate finance and mort- gage business. 2 Report of the Board 2002 – the hangover continues tional status. The importance of private banking for Switzerland cannot be overemphasized: The year under review brought no improvement. approximately 6% of the GDP is generated With ongoing stock market recession and a slack by asset management, most of which by far global economy, earnings declined again par- in the value-added intensive private banking ticularly among the asset management and trad- sector. As shown by a representative survey on ing banks. Tentative hopes of an upswing faded behalf of the Swiss Bankers’ Association, Swiss away as war plans loomed nearer and nearer. Nei- people are well aware of this: 90% of those asked ther consumers nor investors found any assur- regard banking as extremely important or at least ance in view of the resultant political and eco- moderately important for the Swiss economy. nomical insecurity. Even after completing the No greater importance is attached to any other Iraq invasion, this situation is no better as yet. sector. Earnings erosion was exacerbated by higher or Other countries also know the economic impor- at most unchanged costs.The cost reduction tance of private banking, however, and are trying measures introduced by many banks were not yet to build up their own market share in this seg- reflected in results for the year. There are limits ment. Apart from know-how and services quali- to such changes, however, and a good many banks ty, the most important success factors in pri- are confronted with a widening gap between vate banking are legal and tax conditions and expenditure and income. Costs follow their juridical stability. Since these are politically own laws – apparently independently of eco- determined, the battle for market shares is nomic developments as a whole. Material and largely fought at political level and in interna- human resource expenditures are largely treated tional organizations. It is to be feared – para- as fixed costs, not least due to ever-increasing phrasing Clausewitz – that regulation will be legal and supervisory requirements. In a time used as the continuation of competition with when the upswing in surveillance legislation is other means. contrasted by a stock market low, such cost rigid- ity may not allow survival. Individuality Solitude vivifies – isolation kills The increasing importance of the political dimension was highlighted in particular last year Switzerland must uphold her international lead- with regard to private banking legislation: ership as a financial centre by defending and • Switzerland is to introduce a withholding tax increasing her advantages in this respect. regime on interest income of EU residents Although individuality is a success factor (see box 1), successfully opposing thereby the thereby, Switzerland cannot afford to disregard exchange of information clause strongly the harmonization of surveillance law with favoured by the EU Commission and some behaviour rules – otherwise she risks being iso- member states. While on the one hand this lated and marginalized. During the year under withholding tax regime will still guarantee review Switzerland often found herself walking Swiss banking customers protection of their this tightrope between integration on the one private sphere, it also prevents avoidance via hand and isolation on the other. Switzerland of tax on interest of EU residents. Switzerland is the global leader in asset man- Furthermore, this solution also has economic agement for private clients. No other bank- benefits because a withholding tax regime is a ing service contributes nearly as much to the much more efficient tool for taxing interest Swiss economy, or enjoys a comparable interna- income than exchange of information. 3 Report of the Board •To prevent this success from backfiring, regard to the Know Your Customer rules, Switzerland must firstly insist on implemen- numerous leading financial centres abroad tation and application of the guidelines in are still considerably behind best market prac- EU member states, their dependent and associ- tices, as revealed by a study on behalf of the ated territories, and in other European coun- foundation SFS Stiftung Finanzplatz Schweiz tries. Secondly, Switzerland must also take over (see box 2).The latest obligations will accen- all the exceptions and special cases pro- tuate these international differences. vided for in the guidelines. And thirdly, Switzerland must ensure that the international Switzerland must avoid further obligations regulations will also be rapidly integrated in for exchange of information in future. the national legislation of other countries and • Negotiations with the EU in this respect were applied in their financial markets. Otherwise extremely complex, but led in the end to a win- our financial centre will be affected by a specif- win situation for both sides. Due tribute is paid ic form of winner’s curse: global leadership here to the delegates for their negotiation skills can bring considerable business drawbacks (on and co-operative teamwork with our members. the cost side). • As a leader in private banking, Switzerland must take measures to prevent money launder- Integration ing. The Swiss Bankers’ Association’s revised Due Diligence Agreement and the Money Individuality is indispensable