INTERNATIONAL. Geneva’s bankers, who forged the biggest offshore hub for the Middle East super-rich after Saudi Arabia’s King Fahd built a summer palace in the city 35 years ago, are using the Arab Spring to counter client withdrawals.
Lombard Odier & Cie. plans to double assets under management for Middle East clients to 10 billion to 15 billion Swiss francs (US$15.7 billion) over five years, said Arnaud Leclercq, head of Middle East and new markets at Geneva’s oldest private bank.
New money is coming from the Middle East,” said Bernard Droux, one of eight managing partners at Lombard Odier. “The Arab Spring has created some instability in the big Arab countries, and they are happy to go to Switzerland as they have been doing for the last 50 years.”
Swiss banks are becoming more dependent on wealthy Middle East customers as a crackdown on tax evasion pushes American and European clients to pull funds from the world’s largest cross- border financial center. While Middle East and North African assets in Switzerland climbed 14% to 560 billion francs last year, the Alpine country’s share of the region’s wealth will also come under pressure, Boston Consulting Group said.
A Saudi-registered Rolls Royce outside the Grand Hotel Kempinski and hijab-clad mothers pushing strollers along the Quai du Mont Blanc herald Geneva’s seasonal transformation to a refuge from the heat of the Persian Gulf summer. Security, political stability and private banking make Geneva a magnet for Middle East elites, said Nabil Jean Sab head of wealth manager Cie. Privee de Conseils et d’Investissments SA.
“When we start hearing the Arabic music in the streets of Geneva, we know we’re going to receive demands at short notice to receive clients,” said Sab, a Lebanese-born naturalized Swiss. “The Swiss brand is already widely known.”
Most Middle East wealth in Switzerland is held in Geneva, said Heiner Weber, who heads an office in the city for Falcon Private Bank Ltd., which is owned by Abu Dhabi’s government- controlled Aabar Investments PJSC.
“While important families from the Gulf tend to do their commercial banking with banks from their region, they prefer to keep their private affairs separate and offshore,” said Weber. “They educate their children at Geneva’s lakeside schools and appreciate the safety and privacy.”
Geneva, which became a refuge in the 1960s for Egyptian cotton merchants fleeing President Gamal Abdel Nasser, developed as a Middle East banking center after King Fahd constructed a palace in the lakeside suburb of Collonge-Bellerive, where he held councils on summer evenings, said Alain Bittar, who has owned an Arabic bookshop in the city since 1979.
“The most important Saudi people came here to meet,” said Bittar, who counts among his customers many of the ruling families in the Arabian Gulf. “Geneva became a destination for the elites attracted by the banking system.”
Lombard Odier serves a Middle East market, estimated by Boston Consulting to contain US$4.5 trillion of private wealth, through 30 relationship managers in Geneva and London and 10 in the Dubai office it opened in 2006.
Future hires will be focused on the United Arab Emirates as the firm targets entrepreneurs in the construction, engineering and consumer goods industries, Middle East head Leclercq said.
While UBS AG (UBSN) and Credit Suisse Group AG (CSGN), the biggest Swiss wealth managers, and Basel-based Bank Sarasin & Cie. AG also manage Middle East client money from Geneva, the city’s private banks are seeking to maintain their advantage by building a direct presence in the Arabian Gulf.
Pictet & Cie., Geneva’s biggest private bank, Banque Privee Edmond de Rothschild SA (RLD) and Mirabaud & Cie. have all opened offices in Dubai in the last five years.
“Pictet has long-standing relationships with wealthy individuals and families in the region,” said Allard Lugard, the bank’s head of wealth management for the Middle East. “Those economies are still growing faster than the industrial countries in Europe and America.”
Notz Stucki & Cie SA, a Geneva-based money manager focused on funds of hedge funds, started seeking clients this year with at least $1 million from a new base in Bahrain.
“Many Swiss banks are trying to increase proximity to their Middle Eastern clients by placing relationship managers in the region,” said Peter Damisch, head of wealth management at Boston Consulting.
That won’t be enough to prevent the proportion of Middle East wealth invested through Swiss private banks eroding over time, said Damisch.
Geneva’s status as an offshore center is threatened by increased competition from Singapore and Hong Kong, said Chirag Thakral, a Hyderabad, India-based consultant with Cap Gemini SA.
While Geneva’s banks have boosted their Middle East wealth since the start of the Arab Spring 19 months ago, rivals are trying to capitalize on moves by the Swiss government to freeze assets of the toppled the rulers of Tunisia, Egypt and Libya, said Weber of Falcon Bank.
“We have to continually explain this issue to customers,” he said. “They want their assets in a place which doesn’t aggressively or randomly freeze them.”
Switzerland froze 650 million francs of assets connected to Libyan state companies and ousted leader Muammar Qaddafi, plus other funds belonging to ex-Egyptian President Hosni Mubarak and former Tunisian President Zine El Abidine Ben Ali.
Four Swiss banks may face financial penalties or bans on individual employees because their approach to clients connected to the frozen assets of the deposed leaders was “inadequate,” Switzerland’s Financial Markets Supervisory Authority said in November.
While air passenger traffic between Geneva and the Middle East and North Africa climbed by 14 percent to more than 1 million last year as Emirates Airline opened a new route from Dubai, younger visitors from the Arabian Gulf are curtailing their trips.
“Geneva is a historic destination for the Middle-East,” said Thierry Lavalley, general manager of the Kempinski, where Saudi royals are the main customers for the 50,000-franc-a-night penthouse suite that comes with a chef and walls covered in chamois leather and silk.
“While new generations continue to visit us as their parents and grandparents did and still do, these new generations make their stay shorter.”