The invasion of Ukraine is a turning point, making Swiss finance look like some relic of the cold war. Many clients are nervously asking about the country's neutrality.

Banks don't like to talk about it much even though it is about the wholesale reputation of Swiss finance. Many clients with accounts in Switzerland have become increasingly anxious after the country adopted the EU's sanction regime against Russia – and unexpectedly quickly at that. Now they fear that the government could impose further sanctions against other countries in the future.

Switzerland has indeed given up its long-standing stance of neutrality. That is a major watershed. Not necessarily about the term and the endless political debate about what it actually means in the contemporary world. But it is decisive in relation to the question as to whether clients abroad will continue to entrust Switzerland with assets in the future.

Concerns out of Latin America

The concerns are valid. «Of course, foreign clients are worried now», confirms Patrick Stauber, Group CEO of Marcuard Heritage, a large, globally active Swiss wealth manager. Eastern European clients were not the only ones questioning recent steps, but queries came in from Latin America as well.

In the past, Switzerland was a safe haven for them «par excellence». It wasn't about avoiding taxes but knowing that part of their assets was being kept in a stable, secure country - and one that respected financial privacy. That perception could be at stake now.

Alternatives to Swiss Finance

There are two alternatives to Swiss finance right now. The U.S., with its extensive financial industry, legal framework and political security. Young Latin American clients, who don't put as much stock in Switzerland as their parents do, seem to be gravitating towards Miami.

That is why Julius Baer regularly reviews whether it should build up a presence in the U.S., as CEO Philipp Rickenbacher recently told finews.com in an interview.

Mideast Efficiency

Dubai in the United Arab Emirates is a hub that can expect to profit from current developments, as the «Financial Times» (paywall) recently reported. It has an efficient financial network and an open, dependable, if still autocratic, government. It has good flight connections, political stability and is attractive as a vacation and leisure spot for the wealthy.

Threat from Cyber-Warfare

A central question in the current environment is data security, particularly after the recent «Suisse Secrets» leaks. That issue is less about the clients that Credit Suisse banked or didn't bank, but more about how anyone could steal that much confidential information related to thousands of clients.

A heavily contested cyber-war has broken out in parallel with Russia's invasion of Ukraine and the question of data security is going to be decisive when it comes to the future reputation of Swiss finance.

Patiently Waiting

The fact that many clients are calling their banks nervously these days is also a sign of the dramatic developments in the financial markets. The share prices of many companies are massively down. But making a decision to re-enter the market given the fragile geopolitical constellation seems to be a confusing one right now.

«The war in Ukraine is not over and more sanctions are possible at any time. Buying now and then having to sell when the market becomes turbulent is not the right way to go about things. It is better to wait until the situation becomes more transparent than it is now, and miss part of the recovery if necessary», says Thomas Stucki, head of investments at St. Galler Kantonalbank.

Always Apolitical

«Managing client relationships when equity markets fall becomes even more important», declares a Bank Pictet spokesperson. Advisors are in intense contact with clients about rebalancing their portfolios should that be necessary. And they are always apolitical when it comes to client conversations, the spokesperson maintained. What is important is how the Swiss government acts in the future and how the situation develops overall.

It is not the first time that the Swiss government has imposed sanctions but they have never raised as many waves as they do now, both domestically and abroad.

Neutrality Re-defined

Many still cannot believe that war is at the doorstep in Europe. Even Konrad Hummler, a former private banker and current chairman of «Nebelspalter», a renowned Swiss satirical magazine, says of the recent events in the  past few weeks: «It still has to be set out how the principles of neutrality make any sense in connection with all of this.»

Swiss finance is a relic of the cold war. From a time when the country played a special role in the world. When it was neutral, safe and self-confident. The Russian invasion gave these qualities a completely new perspective overnight. They are still valid but new values and ways of thinking are now part of the whole picture.

Government Decision

Julius Baer, among others, has seen that happen. «Most questions were made before sanctions were imposed», a bank spokesperson said.

Clients wanted to know when Julius Baer would be adopting the sanctions as a display of western solidarity with Ukraine. But it is not individual institutions that decide on sanctions, but the Swiss government, the spokesperson added. 

A Blessing and a Curse

Swiss banks are very aware that such sanctions are both a blessing and a curse. They will now be reviewing their clients against the sanctions lists.

But it will be a balancing act and one in which there is much to lose. It doesn't matter if they miss disclosing a sanctioned client to authorities or whether they exit an entirely innocent Russian. Both cases will end up being a reputational problem.