Sept. 2 (Bloomberg) — Wegelin & Co.,Switzerlandâ€™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 worldâ€™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.
â€œWe came to the conclusion that itâ€™s a threat to our clients,â€ Hummler, who is also president of the Swiss Private Bankers Association, said in an interview yesterday during a conference in Zurich. â€œItâ€™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.â€
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 worldâ€™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 wouldnâ€™t ask other association members to follow Wegelinâ€™s lead. Wegelin, founded in 1741, manages more than 20 billion Swiss francs ($18.7 billion) in client assets.
â€œEvery member is free to decide and act on their own,â€ he said.
HSBC Studies Alexandre Zeller,head of HSBC Holdings Plcâ€™s private bank in Switzerland, said his company is still studying the new rules for qualified intermediaries and will do everything it can to comply with them.
â€œOften in these agreements you have to understand how this will be applied, and it would be premature, especially for an international bank, to take such a decision,â€ he said today, referring to Wegelinâ€™s position. â€œItâ€™s not on the agenda for the moment.â€
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 oftime in the U.S. acquire tax obligations, including estate taxes,creating an unacceptable risk for Wegelinâ€™s clients, Hummler said.
If a client decides to keep his U.S. investments, â€œthen finally he has to change banks,â€ Hummler said.
â€œWeâ€™re talking about probabilities,â€ Hummler said. â€œMy responsibility toward clients has to include any kind of probability,and if I see a real threat then we have to act.â€
Wegelin is finding alternative ways of investing in the U.S. that wonâ€™t impose reporting requirements on the bank or tax liabilities on clients, Hummler said.
â€œThe good thing is that in todayâ€™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.â€
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.
â€œItâ€™s not credible,â€ Hummler said. â€œThe 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 theyâ€™re trying it on.â€
To contact the reporter on this story: Warren Giles in Zurich at firstname.lastname@example.org