US tax scandal brings down Wegelin
Switzerland's oldest private bank, Wegelin & Co, will sell most of its business to the Raiffeisen Group amid a dispute with United States tax authorities.
Wegelin, which was founded in 1741, said on Friday most of its clients and staff would be transferred to a company called Notenstein Private Bank which will in turn become a 100 per cent subsidiary of the Raiffeisen banking group. The sale price has not been made public.
US authorities charged three Wegelin staff on January 3 with conspiring to hide more than $1.2 billion (SFr1.1 billion) in client assets from tax officials. Wegelin said at the time that it was prepared for the “expected quarrel” and the bank had not broken any Swiss laws.
Speaking to reporters on Friday, Wegelin senior managing partner Konrad Hummler said the sale had resulted from “the extraordinarily difficult situation and threat to the bank brought about by the legal dispute with the US”.
“I never could have imagined that we, as owners of Switzerland’s oldest bank, would have ever considered selling,” Hummler said.
Hummler joined Wegelin in 1989 and has since transformed it into a bank with SFr21 billion in assets. He said he was relieved Raiffeisen was taking over Wegelin's clients and employees, which are mostly in Switzerland.
US tax targets
Wegelin is the first standalone Swiss bank to sell its operations in Switzerland as a result of US efforts to catch clients who used Swiss banks to evade the taxman.
Hummler, also chairman of newspaper Neue Zürcher Zeitung, is one of Switzerland's most influential and outspoken bankers. He has accused the US of double standards on taxation due to its own offshore business in centres such as Delaware.
Banks being probed by US authorities are worried that clients, even in their non-US operations, will pull their money out because of the investigations.
The US Justice Department is probing 11 Swiss and Swiss-style banks, including Wegelin, suspected of selling offshore tax evasion services to tens of thousands of Americans.
Wegelin's demise comes just a day after Swiss Finance Minister Eveline Widmer-Schlumpf met with US Treasury Secretary Timothy Geithner on the sidelines of the World Economic Forum in Davos.
Widmer-Schlumpf told reporters after the meeting that she hoped a deal with US authorities on tax issues could be finalised before the end of the year.
The investigations, which grew out of the scrutiny of UBS operations in 2009, are also focused on Credit Suisse and Basel Cantonal Bank.
The new private bank, Notenstein Privatbank, will be headed by Adrian Kuenzi, who was until now the chief of Wegelin's west-Switzerland business. It will be run as an independent unit within the Raiffeisen Group.
Wegelin will remain in charge of its US customers, the two banks said.
The deal, which will give Raiffeisen a foothold in the business of wealth management, will secure 700 jobs in Switzerland, Raiffeisen said.
Wegelin said the company will remain in existence to finalise the closure of all remaining US client relationships and to continue negotiations with the American justice authorities.
Media outlets have reported that the US Justice Department is moving towards taking legal action against Wegelin which could lead to an indictment on charges the bank enabled wealthy Americans to evade taxes.
Such a move would be in addition to the existing indictments against the three employees and would put the bank’s eight directors, including Hummler, directly in the firing line.
As directors of Wegelin, Hummler and his partners have agreed to an unlimited liability for the bank’s commitments, meaning they are personally liable for its activities.
A traditional cornerstone of the bank’s governance, the unlimited liability accepted by the bank’s directors was a key Wegelin tool in presenting an image of a risk-adverse financial institution to clients.
In the wake of the US charges against its employees earlier this month, Wegelin denied they posed a fundamental threat to the bank.
“Were a bank to fall, it would set a precedent, not only for the other 11 banks which are a target of the US authorities, but also for the Swiss financial centre as a whole,” the bank said in a January 9 press statement.
Michel Dérobert, secretary-general of the Swiss Private Bankers Association commended Hummler and his colleagues for “acting responsibly” in protecting its clients and staff.
"I would not say that this signals a general problem for the Swiss private banking community as it is limited to just one bank or rather three of its employees,” Dérobert told swissinfo.ch.
“There is no information that allows me to think that the are other members of the Swiss Private Bankers Association involved in such investigations."
Wegelin & Co
The origins of Wegelin & Co date back to 1741 when Caspar Zyli founded a linen trading and transport company in St Gallen whose revenues were used to provide loans. His son, Hans Anton, developed the European business and in 1802 acquired Notenstein, creating Nothveststein in St Gallen’s city centre, which remains the headquarters of Wegelin today.
In the middle of the 19th century, when railway developments required the support of large investors, the company’s banking activities took on greater importance. Wealthy families flocked to the bank to manage their fortunes. Clients included Napoléon III and his wife Empress Eugénie.
The business was renamed Wegelin & Co by Zyli’s nephew Emil Wegelin to comply with the changes in the company’s mandate resulting from its involvement in railway construction.
The business was able to weather the turbulence of the first half of the 20th century and celebrated its 250th anniversary in 1991.
It has eight managing directors, each of whom has accepted an “unlimited liability” for the fortunes of the bank – meaning they are personally liable for the commitments of the bank.
The bank has branches in 12 Swiss cities in addition it its St Gallen headquarters. It employs 700 people and manages some SFr24 billion.End of insertion
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