Promising performance by Geneva's financial centre
Read Blaise Goetschin's interview in the NZZ
The era of dirty money led some to predict the end of Geneva's banks, but on the contrary, the city's banks have shown themselves to be responsive and capable of adapting to the times.
Be it Credit Suisse, Wirecard or ancient Rome, the unexpected fall of a "big one" never ceases to fascinate. There is far less interest in those that manage to survive the tough times – even if seemingly everyone has predicted their demise. Geneva's financial centre is one of these lucky survivors. Switzerland's second-largest banking centre was hit hard by the 2008 financial crisis. Several major banks had gambled on dubious hedge funds and on the swindler Bernie Madoff. Moreover, the tax dispute with the United States and Europe risked destroying Geneva's commercial base. Why would the world's rich come to the city of Calvin if not to deposit their dirty money? As a result, many foreign banks withdrew from the city or scaled back not only their ambitions but also their staffing levels. Lately, negative headlines have been covering the papers again. It was feared that the controversy over Swiss neutrality and the sanctions against Russia would scare off anyone from emerging countries. What's more, the fact that Switzerland's third-largest banking centre, Ticino, was in full decline did not bode well for the number-two banking centre either.
But the predictions did not come true. Once again, the motto on Geneva’s coat of arms proved its worth: Post tenebras lux - After the darkness, comes the light. According to a survey by the Fondation Genève Place Financière (FGPF) presented last autumn, the outlook for Geneva's banks is very optimistic. For the first half of 2023, the majority of the city’s banks announced higher sales and profits than the previous year and are planning to recruit new staff, particularly client advisers. The largest banks are particularly confident. Admittedly, with just over 17,000 employees, Geneva's banks employ 3,000 fewer people than in 2008, and their share of gross domestic product has also fallen. But on a whole, the financial centre still represents 13% of Geneva's GDP, which is considerable. Geneva is also still home to several major banks, including Pictet, Lombard Odier, Edmond de Rothschild and UBP. Plus, the city is home to subsidiaries of several major foreign banks such as JP Morgan, HSBC and BNP Paribas, as well as to numerous independent wealth managers, asset managers and specialists in areas such as sustainable investment. Denis Pittet, Chairman of the FGPF and a partner at private bank Lombard Odier explains: "Some people thought that our model would come to an end with the introduction of the automatic exchange of information. But the opposite has happened. The city's financial centre is resilient, capable of adapting, and remains an export sector." Much of this growth is not generated in Switzerland but comes from cross-border business, particularly with Europe and the Middle East. This means that Geneva can offset the decline in business with Russia. However, some financial institutions have borne the brunt of the measures taken against Russian clients, whether it be the freezing of assets of sanctioned individuals or the restrictions imposed on all other Russian clients. Since 2022, Russian money has been going to Dubai and to some extent also to Singapore and the United States, but almost no longer to Switzerland. In principle, Pittet welcomes the introduction of sanctions and the fact that Switzerland is applying them strictly. However, the fact that the sanctions adopted by the EU and consequently by Switzerland translate into restrictions on Russian citizens who are not subject to sanctions remains a thorn in the side of the financial centre. Banks are no longer allowed, for instance, to accept more than CHF 100,000 from a Russian client. "Today, we face fierce competition from financial centres that just a few years ago hardly existed at all," explains Pittet. Hong Kong and Singapore have seen significant growth, but it is Dubai that has progressed the most. "20 years ago, it was just a tourist destination, but today Dubai attracts expatriates from all over the world."
Assets in hand
Geneva's banks – some of which are also present in these other financial centres – still have a number of advantages. These include old-fashioned values such as professional advice and support, a stable currency and a predictable fiscal and monetary policy. And when we talk about "security", we're not talking in the abstract. We are talking about the legal and physical security of clients. "It may well be that there are virtually no demonstrations in other financial centres such as Dubai, Singapore or Hong Kong. But you are under surveillance there", explains Blaise Goetschin, who has headed the Banque Cantonale de Genève for many years. Geneva also benefits from the flourishing commodities trade. Admittedly, the restrictions on energy trading with Russia and Ukraine and on grain trading have made themselves felt, according to Goetschin, whose bank is active in this area as well. But apart from that, business has been going well since 2019 and this success has been felt by Geneva's banks offering trade finance. The situation is, however, changing. In 2023, US officials visited Geneva to ensure that sanctions against Russia were being respected. The significance of this visit should not be exaggerated. Nevertheless, it is part of a show of strength on the part of the United States, which wants to strengthen its own financial and commercial centres. "Here too, competition is increasingly coming from Dubai," explains Pittet. The trend is similar to that observed after restrictions were placed on unsanctioned Russians and their assets. Since Dubai is not complying with the rules that the West has imposed on itself, the country can look forward to a major influx of new money and new business.
Geneva's banks are also concerned about the lack of access to the European market. According to Pittet, Bern has just taken an important step toward resuming regulatory dialogue with Brussels. "However, we regret that the institution-specific approach is not part of the negotiating mandate," he says. Basically, this means that every Swiss bank wishing to offer its services to clients in the European Union must adopt all the EU’s regulations and be supervised by a central EU supervisory authority. Pittet asserts that the approach developed by the Swiss Bankers Association is essential in order to avoid a major disadvantage for the Swiss financial centre. However, according to Goetschin, the negotiations with the EU – which are still pending – are not vital for Geneva. "If the negotiations were to fail, with the risk of a deadlock, it would not be a catastrophe." Unlike Zurich, the Geneva economy is more exposed to the dollar than the euro. "Tourists come mainly from Asia, the United States and the Middle East, and less often from Austria or Poland."
Fewer target markets
The takeover of Credit Suisse by UBS will also make fewer waves in Geneva than in Zurich. Together, the two banks employ more than 1,700 people in Geneva, making them among the largest employers," says Pittet. Yet, "A large proportion of these individuals are client advisers or part of such teams. They are therefore employees who are always in demand." In addition, such individuals include compliance and investment specialists who will probably also be taken on by UBS. Nevertheless, Geneva's banks cannot rest on their laurels. Focusing on certain areas is becoming increasingly important. These days, Swiss banks no longer bring their own understanding of regulations to their clients in other countries; they adopt the regulations of the target country. Some banks have been quicker and more radical than others in this refocusing. On the other hand, "all banks have reduced the number of their target markets", explains Pittet. In his view, the process is still ongoing. It will be necessary to broaden the range of appropriate products, develop IT channels and strengthen skills. He cites the example of the United Kingdom, with which Switzerland has just signed a mutual recognition agreement for financial services. In this country, there is a specific tax status for "non-domiciled residents". These individuals live in the UK but do not have to pay tax on their income from other countries at the UK tax rate. This status is attractive, but it also entails a number of constraints. If a bank wants to acquire British clients, it will need to know these rules in detail," stresses Pittet. It is precisely in the area of 'complex' clients – such as families living in the four corners of the world – that Geneva's banks stand out from the competition. Another reason to remain optimistic is tax policy. The German-speaking Swiss often think that Geneva is a tax hell. But this is not true in all areas. For example, ordinary tax on company profits is much lower in Geneva than in Zurich. And according to Goetschin, unlike in many other countries, Geneva's public finances are also in order. What's more, Geneva rejected several left-wing initiatives to raise taxes last year.