Fitch calls for US-Swiss global tax settlement

Fitch Ratings has called for a government-led global solution to end the various ongoing disputes between US authorities and Swiss banks.

Such a settlement would be costly, but remove the risk of further indictments and other legal action against Swiss banks – “including ultimately the exclusion from US dollar clearing” – Fitch said.

“This would allow the banks to refocus management attention on their core (non-US) private banking operations.”

The overall challenge stems from the fact that while US authorities are chasing their own citizens around the world, as a proportion of earnings and assets they actually represent relatively little benefit for the banks affected.

Fitch is already factoring in litigation and settlement expenses into its ratings of Swiss bank, but said these could come under further pressure if there is no solution to mitigate this type of risk going forward.

“The Swiss private banks will have to continue to centre their business models on fully-declared off-shore client assets and on-shore operations, notably in European markets given the US investigations and also negotiations between Switzerland and several European countries (including Germany) about revised double-taxation agreements. Many banks, in particular the larger private banks, have pursued this strategy since the late 1990s, anticipating continued pressure on undeclared client assets.”

“Smaller, less diversified private banks would be more susceptible to country-specific developments, such as temporary tax amnesties. For the larger private banks we rate, their operations are geographically diversified, notably in the Middle East and Asia, thereby reducing their reliance on single European markets such as Italy, France or Germany.”

The matter has come to a head in this past week, as Swiss private bank Wegelin was forced to announced it would close after admitting it helped US citizens avoid paying taxes.

 

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