Switzerland research guide

SWITZERLAND

A EUROMONEY SURVEY - MARCH 1996

Introduction

A PROMISING FUTURE

When referring to Switzerland as a financial centre, what is often meant is the unique position that Switzerland has long held in the world of private banking. This history deserves a brief review, since it is relevant to Switzerland's current status as an international financial centre. Equally important to global investors, however, is the future development of Finanzplatz Schweiz and the comparative advantages it will offer private and institutional investors.

PRIVATE BANKING

The leadership position Swiss private banking enjoys today was not achieved by mere circumstance. Rather, it arose out of a number of different factors:

Factors which built leadership

1) The first crucial factor in Switzerland's leadership position was its unconstrained openness towards its European neighbours, manifested by its multicultural society and the four languages spoken within its narrow borders.

2) A second factor derives from the country's relatively small size and lack of natural resources, which encouraged the Swiss to look beyond their national borders and cultivate business relationships with foreign merchants.

3) A third factor is the confidentiality desired by the wealthy; a need which Swiss financial institutions have always been capable of meeting. Today, Switzerland's banking secrecy laws guarantee investors confidentiality and security. Other countries, such as Luxembourg, France or Austria, have now also made the violation of banking secrecy laws a punishable offence, but in Switzerland banking secrecy is particularly stringent. Swiss banking secrecy is not intended to serve as a barrier to criminal investigations but as protection for people who have accumulated investment assets through entirely legitimate means.

4) A fourth factor is Switzerland's political stability and long-standing neutrality. Foreign investors, whose assets were often imperilled by political upheaval, warfare or runaway inflation, often saw Switzerland as a financial safe haven, where their assets were managed reliably and professionally.

5) Finally, there is the quality of financial services offered by Switzerland. Quality has since become an important criterion by which international financial centres are measured. A recently published study by London-based property company Healey & Baker confirms that Swiss employees are ranked among the best in Europe with regard to quality. Fluency in several languages, for instance, is just one advantage when dealing with a Swiss investment advisor.

Because of the above factors, as well as the strong Swiss currency and the country's historically stable macroeconomic conditions, Switzerland has become a major financial centre. An estimated 35% to 40% of all foreign-managed assets, or Swfr2,000 billion to Swfr2,500 billion, are managed in Switzerland. Maintaining leadership is a challenging task in today's highly competitive environment. The needs and desires of both domestic and foreign clients have to be constantly clarified and competently addressed, and services continuously tailored to these ever-changing requirements.

INSTITUTIONAL CLIENTS

Financial services specifically designed to accommodate the needs of institutional investors did not emerge until the mid-1980s, but have since grown to become one of the major segments within the financial services market. The aggregate total of pension fund assets alone is likely to grow to $12,000 billion by the year 2000. This development has given rise to a vast array of products for institutions, offered as an all-in-one or tailor-made service .

The preferences and valuation criteria of institutional investors differ from those of private individuals on a number of points: Institutions are interested, for instance, in well-organized and efficient stock exchanges, a modern framework and an attractive macro-economic and micro-economic environment.

Unfortunately, Switzerland used to be handicapped by a number of structural deficiencies which provided other financial centres, such as Luxembourg or London, with a competitive advantage. One particular disadvantage was Switzerland's stamp duty, which considerably increased the cost of stock-market transactions and encouraged investors to take their business elsewhere. This deprived Swiss exchanges of several billion francs worth of turnover every year. Laws regulating Swiss investment funds were also highly restrictive until very recently, inducing both Swiss and foreign banks to establish and operate fund companies in Luxembourg or other offshore centres, rather than in Switzerland. Switzerland's open outcry system and the fragmented structure of three cantonal exchanges in Zurich, Basel and Geneva, were neither modern nor competitive.

Influential leaders from Swiss political, business and stock exchange circles were realizing where the financial world was heading and worked together to come up with several important innovations.

One major area involved legislative modifications to improve investment conditions in Switzerland. Another big project is the Elektronische Börse Schweiz (EBS), a screen-based trading system which will bring about major improvements for investors. These efforts, along with Switzerland's favourable macroeconomic environment and interesting microeconomic developments, will make Finanzplatz Schweiz even more attractive in the next few years. This should encourage more and more international investors to do business in Switzerland.

IMPROVEMENTS

Legal developments

Switzerland's new securities law, which went into effect in 1992, provides greater protection for shareholders and has also increased transparency. As a result, the attractiveness of investing in Swiss equities has been greatly enhanced. Since then, important amendments have been made. For instance, companies are prohibited from arbitrarily refusing to enter registered shareholders in their registrar.

A new investment fund law, conforming to EU directives, was enacted on January 1 1995. This new law gives Swiss fund managers greater leeway with regard to options, securities lending, leverage and short selling. Newly created fund categories ('other fund' and 'other fund with increased risk'), enable a greater differentiation of fund strategies and thus broaden the range of Swiss funds from which investors can choose.

The new stock exchange law will tentatively come into effect in July 1996 and the new listing regulations in January 1997. Both are designed to improve shareholders' rights and the transparency of the Swiss stock market.

The stock exchange law represents a significant improvement in the rights of minority shareholders: major shareholders must notify both the company and the stock exchange authorities once their interest in a company exceeds or falls below a certain level. In addition, a public offer has to be made to all shareholders once a single investor owns more than 33% of voting rights.
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