Banks including UBS and Vontobel see a lot of potential in offshore banking with rich U.S. clients. The business has never been tougher though, research by finews.asia reveals.

«We are able to offer our clients something very special, and that’s why we are able to win the battle of David against Goliath.» These were the words of UBS CEO Sergio Ermotti.

«The appetite to invest abroad is decreasing among clients,» said Eric Syz, head of Bank Syz in Geneva. Two bankers with contradicting views on the same market. Syz and Ermotti were talking about offshore banking with rich Americans.

Who's Right?

The fact that two seasoned bankers hold so starkly opposing opinions about one and the same market is probably a sign of the times. In Switzerland, relationship managers specialized in the U.S. market are moving from bank to bank at an ever faster pace, while banks are either adding entire teams or getting rid of their portfolios – as happened recently when Vontobel acquired the U.S. client book of Lombard Odier.

The question is whether the U.S. business is a veritable bonanza or more or less a shelf-warmer. Who’s right – Syz or Ermotti?

Seriously Sensitive

A quick look back: when U.S. investigators started targeting the Swiss big bank UBS in 2008 for illegally abetting tax evasion, the offshore business with clients based in the U.S. became a seriously sensitive one for Swiss banks. While Wegelin or Bank Frey were swept away by the scandal that broke, other banks quickly adopted a less risky white-money strategy. They founded SEC-licensed units to manage U.S. assets in Switzerland in keeping with U.S. tax laws.

At that time, says a banker familiar with the business, Swiss companies had about 20 billion Swiss francs ($20 billion) in assets belonging to U.S. clients. Ten years later, more than 40 licensed companies are competing for roughly the same amount of money. «This,» he said, «isn’t what I would call a growth market.»

Hard to Gain Access

The reasons why the assets have remained roughly unchanged over many years are to be found in the idiosyncrasies of the business. Observers say that it has become exceedingly tough to make rich Americans move assets to Switzerland after the end of the hide-and-seek with the U.S. taxman.

Even more so because Swiss bankers in general find it hard to gain access to the wealthy Americans. They have to take the detour via tax lawyers and fiduciaries.

America First

That’s why Swiss bankers are famously door-knocking at the offices of lawyers and fiduciaries – an activity that hasn’t become any more attractive over time. With strong U.S. stock markets and regulatory hurdles to take, few Americans see a need to move their assets to Switzerland. «America first» seems not just the slogan coined by the president, but one that describes where wealthy Americans prefer to keep their money.

So, if inflows and outflows roughly apace, what remains is cut-throat competition. The only way to grow is to poach relationship managers with their books. Still, with client retention ever more stringent and net new money down to trickle, it’s more about crowding out than a fight where there’s plenty for everyone.

Big Stride

This holds for niche players such as Swisspartners, Bellecapital and LFA. Also for private banks such as Pictet and Vontobel, which made a big stride in taking over the Lombard Odier business. Remains UBS Swiss Financial Advisers (UBS-SFA), which has about 5 billion francs in assets from U.S. clients.

The UBS team has been reinvigorated by the merger between the American and global private banking into Global Wealth Management. The move may ease their access to U.S. clients and «Reuters» reported recently that UBS-SFA is set to get licenses for further products.

Attractive Target

CEO Ermotti meanwhile aims to attack the business with U.S. expats in Asia and Europe. Some 7 million high-income U.S. citizens roam the world – an attractive target for Ermotti’s wealth management.

Insiders however have warned that UBS bankers based in the U.S. rarely volunteered to share the spoils with their Swiss clients. This approach may be in for some softening up as the global unit takes charge.

Deal With the Paperwork

But the question about who is to deal with the paperwork – an expat needs a tax declaration for both the U.S. as well as his current place of stay. Dealing with the administration while not being able to earn money on the assets of the clients – that won’t go down well with the Americans within UBS Global Wealth.

So, growth and crowding out may yet again be closely interlinked in the offshore business with U.S. citizens.