09 November 2009
Switzerland is riding out the recession in style. Marcus Staff reports on the country’s innovative blend of the old and the new
A way to think of Geneva, but one that is not obvious to Britons, is as a city state, rather like Florence, and in so doing to appreciate that the Swiss Confederation is exceedingly fortunate that Geneva still participates in the arrangement.
It is an issue of mentalité: in other parts of ‘la Suisse Romande’ three or four (very small) glasses of the typical fizzy white administered to a local will, with one or two leading questions, elicit from them an uncharacteristic indiscretion: that the people of Geneva are remarkable for their pride in where they are from. One might say it is quite normal to be proud of where you are from, but really, it is how you put it that matters; and the Genevans are apt to put it in a way that has made them somewhat prominent in Switzerland, where everyone is rather proud of their locality. If you see what I mean, they stand out for it – it is a little bit unusual. Can it still be defended as just comment? After all, Geneva is an international financial centre in the midst of an international financial crisis: has it worn it?
In short, yes. In Geneva, the best banks, the lawyers and the trust companies are still outstanding in delivering services to the transnational rich. Switzerland remains focused on developing wealth management products and skills and its legislators remain open to innovation.
The Swiss branches of the Society for Trust and Estate Practitioners (Step) are very strong in catering for the professional education of trustees, and in 2007 Switzerland enacted the Hague Convention on the Law Applicable to Trusts and on their Recognition. Moreover, there have been new developments concerning the taxation of trusts. I have only one particular word of warning: although it is now much easier to litigate a foreign trust in the Swiss courts (and sometimes this is promoted as a benefit of having Swiss trustees), it should not go unnoticed that a Swiss court does not have the remedies available in a traditional court of equity: administration, and the remedies short of administration. For example, there is no equivalent to a court-appointed receiver, which is one of the oldest and most powerful remedies available in the court of chancery; nor is it clear how a Swiss court would, with a trustee’s application for directions, such as in contemplation of bringing or defending litigation (Beddoe relief). Swiss lawyers have yet to solve these problems convincingly. Nevertheless, the enactment of the Hague trusts convention is a welcome addition to Switzerland’s comprehensive body of private international law.
The remainder of this article is devoted to some slightly off-the-wall comments on Geneva and the international wealth management business in the midst of the global financial crisis – a series of topical snapshots and personal observations based on rumour and anecdote.
Whereas Florence was at the heart of the renaissance, and the artists and craftsmen it produced were sponsored by Florentine bankers, Geneva was at the heart of the reformation and opened its arms to the exiled protestant bankers of Lombardy; but that is about as far as the cultural comparison can reasonably be taken. Not that Geneva is not a very nice place, it is. Yet whereas Florence wins hands down in the cultural stakes, Florentine bankers were ‘tapped out’ by the end of the 17th century, which is when the Genevans were just getting started with some Italian assistance, and they are still going strong. The point here is that the Swiss welcome innovation: steady, and planned to be sure, but they absorb talent and ideas. Trusts are an example of this: trusts are alien to Switzerland, yet many of the world’s leading professional trustees are in Geneva. There is tradition, including a tradition of innovation. It sounds glib to say it, but there is a lot of truth in it.
The poshest Swiss banks are the old banking partnerships such as Pictet, Mirabaud and several others, and although their numbers dwindle the best survivors seem to grow stronger. The best smelled the Madoff rat and would not touch it, or let their clients do so – that is a fact they say shows their quality and, fair enough, it probably does. Others in Geneva failed abysmally. The world of international wealth management is replete with little turns of phrase: the most grotesque in the past decade having been ‘affluenza’ – a disease as marketing tool. Oh, being rich is tough.
Taking your medicine
Money makes you and your family ill, and we, the wealth-quacks, can cure it. Madoff and his cohorts have cured a lot of people of the disease and the newspapers report that around $2bn worth of cures were distributed via Geneva. This is hardly surprising, as it is a disease of the rich who were congregating at the same Swiss clinic. Do the facts bespeak success of failure? The irony in the tragedy is that it is probably the former.
Irrespective of Madoff, the commercial banks, such as Credit Suisse and UBS, have taken a beating since 2007 and the word is that money has poured out of them into the old houses, the safe havens (the posh banks), although naturally only to the extent they were willing to take it: a lot of the rest seems to have gone into the Swiss Post Office, which is now so successful at taking deposits it is thinking of becoming a commercial bank (which seems somewhat circular). On the theme of mattress-stuffing, I have it from a reliable source that the decorous ritual of the Geneva bank vault was, at points in 2008, displaced by frantic activity that brought these temples of stashing cash in long trays to resemble their polar opposite in the banking world – an open-outcry bear pit; as the stuffers frantically drew their cash upstairs and fought to put it in a downstairs drawer.
Of course, quite a lot of people in ‘la place financière’ got it badly wrong, but that only shows the quality of the others, the ones you should have gone to, then you would not have lost all your money. Nevertheless, the people of Geneva are still digging to stay ahead of the game. They seem to have worn it quite well and, if you are still rich, and not yet there, you might want to check it out. n
Geneva resident Marcus Staff is a barrister at XXIV Old Buildings