Banking: The Fall of Europe?

Last year, the Swiss businessman Jürg Stäubli won a tender issued by the Government of Kyrgyzstan to take over the management of a public bank. As for Riccardo Tattoni, he decided to invest in an Estonian bank. But why go so far to invest in the financial sector?

“The global economy is changing at a dizzying pace, banks are subject to new regulatory requirements and Asian financial markets are developing with great dynamism,” said a statement from the Swiss Bankers Association. Jürg Stäubli, director of the company CF&C Finance Suisse SA and Riccardo Tattoni, CEO of the company CIGP caught wind of the trend. Like many Western investors, they are now focusing on more dynamic markets than Western Europe and, in particular, more so than Switzerland.

Customers are more demanding and sensitive to fees and applied rates. New business models and a very strong Swiss franc will put additional pressure on gross margins of banks operating in the Swiss Confederation. Moreover, operating costs will also rise because financial institutions are subject to increasingly stringent regulatory requirements and are forced to improve the quality of their products and services constantly, while having to comply with tax authorities worldwide. “Employees of the Compliance department are the new stars of the bank!” Said a Geneva private banker of who wished to remain anonymous. Finally, political uncertainties (domestic and multilateral) are still hanging over the financial sector and hinder the dynamism of the business at large.

The end of Swiss banking secrecy is scheduled for 2018.

It was announced through an official statement from the Swiss government in early October, after nine years of talks and tough negotiations with major stakeholders of the international community. “Switzerland confirms its intention to introduce, in due course, the legal basis for the application of the automatic exchange of information so that the Swiss financial institutions are able to start collecting data on accounts of foreign taxpayers by 2017. A first exchange of information could thus take place in 2018″, says the text. Until today, Switzerland has been delivering information on a case by case basis, through a slow and complicated process. When a country suspects one of its taxpayers of tax evasion, it must make a detailed request for information to the Swiss tax authorities, specifying the exact coordinates of the account holder and the reasons for the request. By 2018, new laws provide for much easier access to information pertaining to citizens of the requesting country.

How will the sector be affected by these changes?

In the absence of the major incentive that was tax evasion, it is crucial for a country to develop an attractive banking sector to prevent the flight of capital which is so critical to its growth. Furthermore, as clearly explained by a PWC report dated 2011, “The deep financial crisis of 2009 has undeniably changed the global financial landscape and marked a greater involvement of the states in the banking industry”. They therefore have a greater interest in the integration of a healthy and competitive financial system within their economy, which will allow them on one hand to repatriate and keep their taxpayers’ assets and on the other hand, to stimulate their economy.

At a time when virtually no foreign bank is setting up shop in Switzerland, some Swiss businessmen decided venture elsewhere.

Such was the case of Jürg Stäubli who traveled to Kyrgyzstan for the first time in 2010 to meet with the Minister of Justice. The minister offered him a consultancy mandate to set up a banking and finance institute in the Faculty of Economics of the University of Bishkek. One thing will lead to another, and Jürg Stäubli will quickly emerge as a partner of choice in the eyes of local stakeholders. It was through his role with the University of Bishkek that he learned of the tender for the management of Kyrgyzdyikanbank. The state-owned bank would become KSBC (Kyrgyz Swiss Bank Corporation) after Jürg Stäubli’s successful bid.

“The economic future is in Africa and Asia. You have to be in these markets. Kyrgyzstan is the only interesting country because the democratic process is so advanced that it will be difficult to go back”, said Jürg Stäubli.

As for Riccardo Tattoni, the former boss of Société Bancaire Privée is betting on Estonia. “Estonia is a great country with very low inflation, excellent political stability and very attractive tax conditions.” That is why he decided to take an important stake in an Estonian bank which benefits from its 2004 entry into the European Union and boasts a satisfactory track record.

In Africa, banks have realized the importance of focusing on the further consolidation of banking operations and pan-African cooperation. Mergers, acquisitions and partnerships multiply at great speed from Togo to Nigeria, all the way to South Africa. North Africa is no exception: In Morocco, the People’s Bank (Banque Populaire) has bought half of the Ivorian group Banque Atlantique and took operational control. There is certainly still much to do in terms of business environment, governance and anti-corruption, but there is an upward trend in the business climate, particularly with the increasing foreign investment from Asia.

It goes without saying that bankers in Western Europe, particularly in Switzerland, will have to demonstrate a lot of ingenuity to continue to shine on the international scene, otherwise local economies will continue to suffer for years to come.