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

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 during a conference 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 wouldn’t ask other association members 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.

HSBC Studies

Alexandre Zeller, head of HSBC Holdings Plc’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.

“Often 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,” he said today, referring to Wegelin’s position. “It’s not on the agenda for the moment.”

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.”

U.S. Alternatives

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.”

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.”