[THS] Oldest Swiss Bank Tells Clients to Sell U.S. Assets or Leave

[Peter Webster]

http://www.bloomberg.com/apps/news?pid=20601087&sid=aJstU9MVcYSg

Oldest Swiss Bank Tells Clients to Sell U.S. Assets or Leave

By Warren Giles

Sept. 2 (Bloomberg) -- Wegelin & Co., Switzerland’s oldest bank, is telling wealthy
clients to sell their U.S. assets, or switch banks, because of concerns new rules will
saddle investors with tax obligations in the world’s biggest economy.

U.S. proposals to extend reporting requirements for banks whose clients buy
American stocks and bonds coupled with estate tax liabilities that may be inherited by
the heirs of people who have such holdings prompted the advice from the St. Gallen,
Switzerland-based bank, said Managing Partner Konrad Hummler.

“We came to the conclusion that it’s a threat to our clients,” Hummler, who is also
president of the Swiss Private Bankers Association, said in an interview yesterday in
Zurich. “It’s also a threat to us as a bank because as a custodian we are an executor
to the estate. We find this aspect discomforting, so we recommend selling all
American securities whatsoever.”

Hummler said he plans to raise the subject today at a meeting of the Private Bankers
Association, which counts Pictet & Cie., Lombard Odier & Cie. and Mirabaud & Cie.
among its members. Swiss banks, which manage $2 trillion, or 27 percent, of the
world’s privately held offshore wealth, are struggling to protect bank secrecy after the
government agreed to hand over the names of 4,450 UBS AG clients to U.S. tax
authorities.

Hummler said he won’t ask every member of the association to follow Wegelin’s lead.
Wegelin, founded in 1741, manages more than 20 billion Swiss francs ($18.7 billion)
in client assets.

“Every member is free to decide and act on their own,” he said.

‘Real Threat’

The U.S. has proposed increasing reporting and oversight requirements for so-called
qualified intermediaries -- foreign banks that withhold taxes on behalf of the Internal
Revenue Service. In addition, new rules may mean that people who spend limited
periods of time in the U.S. acquire tax obligations, including estate taxes, creating an
unacceptable risk for Wegelin’s clients, Hummler said.

If a client decides to keep his U.S. investments, “then finally he has to change
banks,” Hummler said.

“We’re talking about probabilities,” Hummler said. “My responsibility toward clients
has to include any kind of probability, and if I see a real threat then we have to act.”

Wegelin is finding alternative ways of investing in the U.S. that won’t impose
reporting requirements on the bank or tax liabilities on clients, Hummler said.

“The good thing is that in today’s world you can build up U.S. exposure in equities
and as well in bonds through derivatives and index funds and so on, so we are
switching to a European-made American exposure.”

‘Not Credible’

Germany and France have also sought to weaken Swiss secrecy laws as they crack
down on tax evaders.

The French government, which signed a double-taxation treaty with Switzerland on
Aug. 27, obtained the names of 3,000 people suspected of tax fraud and holding
accounts at three Swiss banks, French Budget Minister Eric Woerth, said Aug. 30 in
an interview with the newspaper Journal du Dimanche.

“It’s not credible,” Hummler said. “The U.S. had a hard time getting these 4,450
names, then the French come and say we have 3,000? I cannot believe it, but they’re
trying it on.”

To contact the reporter on this story: Warren Giles in Zurich at
wgiles at bloomberg.net