The flare-up of conflict in Israel puts Swiss private banks in a delicate situation. They've invested heavily in the region in recent months but are now caught between a political and religious hard place.

At the beginning of the week, UBS CEO Sergio Ermotti shared his thoughts internally at the bank over the conflict in Israel. In the announcement, which the bank now made public on Linkedin, the head of the world's largest private bank condemned the acts of Hamas but otherwise expressed concern for a balanced attitude.

«UBS stands firmly against all forms of discrimination, including anti-Semitism and Islamophobia, and we stand with all who are working toward a swift and peaceful resolution,» Ermotti wrote.

Despite the neutral tone, he probably went out on a limb when finews.com asked various Swiss private banks that would otherwise report in detail about their regional ambitions, and most refrained from commenting.

«A Powder Keg for Swiss Private Banks»

A long-time observer of the business with wealthy private clients from the Middle East, who doesn't want to be named, is not surprised by this is a powder keg for Swiss private banks. «We know and serve both sides,» he points out, and «Any statement there can be understood as taking sides,» so many banks prefer to remain silent.

The professional rule is never to talk about politics or religion with customers. This situation has both. While the proper behavior toward the clientele becomes a balancing act, the operational business also causes headaches. The situation is causing nervousness in the financial markets, where private bankers invest their clients' money.

Away From the New Blocks

«For asset managers, this is one more worry than numerous others.» Hamas' surprise attack rocked the world at a time when relations between Saudi Arabia and Israel are moving towards normalization. Now, the likelihood of a broader confrontation in the Gulf is rising.

For Swiss private banking, this would be a significant setback. The industry has invested massively in the region recently, especially in  Dubai. This is not only because of the economic potential and the high global energy prices, which further enrich the Gulf's oil billionaires. But probably also because business has become difficult for the money houses in other parts of the world, such as Asia or Eastern Europe, due to increasing geopolitical tension surrounding the Ukraine war.

Riyadh Conference to Take Place

In a recent assessment from Lombard Odier, chief economist Samy Chaar sees Gulf growth stalling this year and recovering slightly the next. However, the outlook for the region remains positive due to reforms, stable solvency ratios, and a strong demographic profile. By contrast, the conflict between Israel and Hamas fuels concerns about this outlook.

A first litmus test and barometer of sentiment on how banks, lenders, captains of industry, and investors are dealing with the uncertainties in the region is likely to become apparent soon at the annual Future Investment Initiative (FII) investor conference in Riyadh, Saudi Arabia. It will be held from October 24 to 26, for which over 5,000 people have registered. The talk is the meeting will take place as planned, and there have been few cancellations due to current events.

This could still change as participants weigh the situation between Israel and Hamas.

Optimistic in Dubai

So far, things are also calm in Dubai. Earlier this week, Dubai Chambers announced the first guest speakers for the Dubai Business Forumbek, which will be held at the Madinat Jumeirah from November 1 to 2. In addition to business leaders, industry experts, and innovators from around the world, representatives from the financial industry will speak at the forum about the future of the global economy.

According to sources, the banking community at the Dubai International Financial Centre (DIFC) continues to lean toward optimism. It appreciates that Dubai positioned itself skilfully economically in recent years and has gained credibility as a mediator in the region, an attitude well-received by the West.

Another source succinctly says, «Who would destroy the house in which their assets are parked?» After all, client money from Israel, Lebanon, Turkey, Russia, and China is also managed in Dubai.

Security measures at Julius Baer

At the Zurich headquarters of UBS and Julius Baer, there are nevertheless concerns about the safety of employees and clients. UBS has temporarily imposed restrictions in the Middle East as a precautionary measure. Likewise, all of the bank's events in the region are postponed. On the other hand, Julius Baer said on request: «We are monitoring the situation very closely and have taken appropriate security measures, including travel restrictions.»

Deutsche Bank, which maintains an important booking hub for global asset management in Switzerland, is also taking a cautious approach. «We're monitoring the situation very closely and are in close contact with our employees,» a spokeswoman tells finews.com.

Faster and Richer

The Middle East is a strategic growth market for most internationally active Swiss private banks. At market leader UBS, growth in fee-generating assets in the Europe, Middle East, and Africa (Emea) region was 5.9 percent in the second quarter of 2023, well above the average for the entire wealth management division GWM. In absolute terms, the big bank received $4 billion in fee-generating assets from the Emea region.

Julius Baer Group, which collected CHF 7.1 billion in net new money in the first half of the year, spoke of «stable inflows» from the Middle East.

The momentum in new money is consistent with the picture painted by wealth reports such as those by consulting firm Capgemini, which notes in a recent study the region was the only area of the world, along with Latin America and Africa, where the wealth of the super-rich (UHNWI) increased last year. Swiss banking can probably no longer rely on the solid bubbling source of new money.

Collaboration: Thomas Pentsy, Samuel Gerber