Wegelin embraces transparency as its assets increase
The expected settlement between the US and UBS on the disclosure of thousands of offshore accounts could have far-reaching consequences for Switzerland’s attraction as an offshore haven for wealthy clients.
Wegelin & Co, which claims to be the oldest bank in Switzerland, is concerned about the potential legacy of the settlement, but upbeat about its prospects, having increased net inflows of assets in the first half of the year by Sfr2.5bn (€1.64bn) to swell overall managed assets to Sfr23bn.
The US Government, eager to track tax evaders, has demanded the names of US offshore account holders it suspects of hiding assets. While details of an initial agreement last week have not been made public, it is expected that UBS will make the names available in a bid to avoid prosecution.
Konrad Hummler, managing partner of Wegelin, said: “Regardless of the final outcome of the settlement, the case will reflect badly on the whole of Switzerland.”
Hummler believes his bank is well positioned to survive the pressure on the Swiss financial services industry to become more transparent and end banking secrecy. He said: “We have always structured the business more along an onshore premise, with at least 60% of our clients Swiss.”
Hummler pointed to impressive first quarter inflows as evidence: “We benefited from the outflow of money from some of the bigger wealth managers as private clients sought to limit risk and move money to well-capitalised banks little exposed to bad debts.”
Nevertheless, Wegelin’s big exposure to structured products – the St Gallen-based wealth manager is one of the biggest active quant houses in Switzerland and controls around 40% of the Swiss market for structured products – caused some difficulties.
Hummler said: “We suffered from the general downturn in structured products.
“We have limited our counterparty risk with our structured products and have cut back the number of counterparties to five from nine before.”
Wegelin steered clear of Lehman Brothers structured notes, where many problems arose in the structured products market during the credit crisis.
Hummler said a great deal of inflow of assets in the first half were into cash deposits, which had its own problems.
“We had to deal with the challenge of too much liquidity on our balance sheet given the amount of clients who were holding cash deposits,” said Hummler.
He added this was beginning to ease as clients became more risk friendly: “During June we were seeing clients going back into the stock market, but even after this they would typically still hold around a third of their portfolios in cash.”
Wegelin’s flagship fund, its active indexing global equities strategy, has generated Swiss franc returns of 12.4% in the first six months of the year, compared with the benchmark, the MSCI World Index.
The fund took a hit last year, falling 50%, and prompting many Wegelin clients to move to cash.
Hummler said: “If you buy a wealth manager, you always have to pay a premium because of goodwill. In order to justify this goodwill, you have to charge more fees to clients.”ɵ
Hummler: managing Sfr23bn in assets
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