Swiss Private Banks Consolidating and Acquiring in Luxembourg
Several private banks have been bought and sold in recent months in Switzerland and Liechtenstein. In Swiss private banking alone, about a third of all players disappeared over the past five years. The industry now includes some 100 firms, compared with 140 in 2013. Consolidation was strong in 2018 and has continued through to the start of 2019, following the same 2017 trend, when 10 deals were concluded. Eight private banks and/or portfolios of assets have been bought and sold in 2018 in Switzerland.
While consolidating, Swiss banks dominated private banking acquisitions in Luxembourg last year, boosting their presence in the EU, while Nordic banks retreated from the market. UBS snapped up Nordea’s private banking arm, UBP bought Banque Carnegie’s Luxembourg operations, Reyl announced plans to purchase the Luxembourg private banking business of Swedish Öhman, and J. Safra Sarasin swooped Israel’s Bank Hapoalim’s private banking business in Luxembourg (and Switzerland). This follows a trend that has been running for a number of years, as relying solely on “equivalence” to access the EU market is a risk for banks. (Equivalence allows countries to sell services into the European single market if their rules are deemed equal to EU standards.) EFG, Julius Baer and other Swiss players have already strengthened their footprints in the country in the past.
At a time of tough negotiations between Switzerland and the EU over market access, as well as Brexit, having a permanent establishment in a country like Luxembourg is one of the safest solutions for banks. Luxembourg ranked among the top three EU financial centres in 2018, having granted 80 new licences for banks, management companies, alternative asset managers, insurers and investment firms.
The Continued Growth of Multi-Family Offices
Multi-family offices (MFOs) continued to be a clear trend in 2018, with plenty of activity and new firms being set up in London, Switzerland, Monaco and Luxembourg, for international and emerging market client coverage, as well as onshore in other European countries for local customers. MFOs can be a great solution for clients to get unbiased advice and a consolidated view of their global wealth, as well as for senior bankers, who can access sophisticated products and services from multiple private banks, securities houses and other financial services firms.
Although it is not easy for new firms to build a profitable business and scale up to become a large player, there is definitely an interest from bankers to explore this route and partner with the very few who manage to create a real sustainable and profitable business. The latest market data suggest that there are today between 3,200 and 3,500 multi-family offices / external asset managers in North America, between 1,200 and 1,500 in Europe, and close to 500 in Asia. It is also estimated that half of these have been established just over the past 15 years.
According to a recent study by Family Office Networks (FON), hedge fund allocations from the family office sector are set to increase during 2019, with 30% of global family offices saying they are keen to allocate more capital to traditional Long/Short, Global Macro and Managed Futures strategies as a hedge against recent volatility in the marketplace. In addition, FON is seeing newer strategies grow in popularity for investment, such as blockchain and artificial intelligence, as well as alternative investments.
Wealthy Individuals Investing and Seeking Residency Offshore
A latest survey by Global Data on offshore investments identified that the proportion of wealthy individuals who invest offshore has risen from 11.2% in 2014 to 16.9% by the end of 2018. The study found that 24% of European investors take the largest proportion of their wealth offshore for tax efficiency purposes, while 41% of North Americans invest the largest proportion offshore to diversify their investments. At a global level, 17% of wealth is invested outside one’s country of residence.
Many HNW & UHNW individuals are also relocating and seeking residence in other jurisdictions, while national regulators have been cracking down on visa schemes as they take a closer look at how these link to tax evasion and organised crime. Governments are reluctant to give up these schemes, however, as golden visa programmes have proved to be a lucrative business, grossing 25bn in the last decade in Europe alone.
The Organisation for Economic Cooperation and Development (OECD) has recently examined more than 100 countries offering citizenship and permanent residence, and has blacklisted 21 jurisdictions, stating that these are operating schemes which threaten the effort to combat tax evasion by international organisations (current list available at www.oecd.org). Spain earns around 1bn per year from these applications and made the most profits from them last year, followed by Greek Cyprus with 914mn, Portugal with 670mn, and the U.K. with 498mn.
The UK Home Office recently tightened up the rules for its golden visa. Starting this month, the UK will require applicants to prove that they have had control of more than £2m for at least two years, rather than 90 days. The investments will also need to be made in UK businesses, while investing in gilts will be excluded, in an attempt to increase the benefit to the British economy.
World’s Most Expensive Cities to Live In
The updated list of the world’s most expensive cities to live in has been released. The EIU Worldwide Cost of Living Survey evaluated the cost of over 150 items in 133 cities around the world. It features a top 10 heavily dominated (80%) by Asian and European cities, with only one Middle Eastern and two American cities in the ranking (see table).
UAE Begins Implementing 10-Year Visa for Expats
As announced at the end of 2018 by the ruler of Dubai, His Highness Sheikh Mohammed bin Rashid Al Maktoum, the UAE has replaced the previous three-year visa for expats, investors, entrepreneurs and even top-performing students, with a new visa that is granted for five to up to 10 years, depending on circumstances and level of investment in the UAE.
The visa also applies to the investor’s spouse, children, one executive director and one adviser in specific cases (full details of the new visa scheme can be found on the UAE government website). The country has also introduced a new law that allows foreign investors to own 100% of a company anywhere in the country, not only in the free zone to which this was previously restricted, in hopes that a large infusion of foreign capital will bolster the economy.
Millionaire Population in Africa and Other Emerging Markets Continues to Rise
According to the latest Global Wealth Report from Credit Suisse, while at the beginning of the century there were 13.8 million millionaires (in USD) globally concentrated (97%) in high-income countries, 28.3 million more people have since became millionaires, 4.3 million (15% of the total) of whom are from Africa, India and Latin America. This population’s growth in emerging and low-income economies surpassed that of high-income countries (outside of Europe and North America). The report also found that the share of global wealth of emerging markets will likely reach 27% by 2023, increasing by 0.5% on average each year.
Africa is one of the key emerging markets expected to continue to produce more and more wealthy individuals over the next 10 years, with the African wealth management market estimated to grow by 7% per annum during this period. According to AfrAsia Bank, the most promising emerging African markets for private banking going forward are Mauritius, Morocco, Angola, Ghana and Kenya. South Africa still stands out as the main wealth management hub on the continent, with total private wealth held in the country surpassing US $730bn.
India Cooperating with Switzerland in Banking
India is the latest country to start sharing information with Switzerland. Starting this year, India will be able to access information related to financial accounts held by Indians in Swiss banks. This will include details about persons allegedly involved in corruption. Switzerland has been seen for a long time as one of the safest havens for illicit wealth moved abroad by some Indians. The tax treaty will allow automated exchange of information, as well as the possibility for the government to dig deeper and obtain further information on request, though of course the information exchanged will be governed by the confidentiality provisions of the tax treaty between the two countries.
According to a recent report by Edelweiss and Campden Family Connect, the wealth of India’s super-rich is forecasted to rise 87% in the next five years, with more families starting to use family office services. Currently 49% of the wealthy Indian families studied in the report use such structures. These services most often come in the form of hybrid family offices; that is, family office services that are embedded in the family business (22%), a common form of early family office development; 19% have established more complex single-family offices independent of the family business, while 8% have established or joined multi-family offices. The remaining families either do not use wealth management services (32%), take their wealth management advice from family or friends (18%), or rely on external advisers (31%).
Wealth Declined for Half of Hong Kong’s 50 Richest
Twenty-three of the 50 richest people in Hong Kong saw their wealth fall in 2018 due to the softening of the local property market and China’s economic slowdown. Their combined wealth fell by just over US$20bn to US$286.75bn last year, a marked contrast to the year before, when it grew by US$60bn to a combined US$307bn.
Tycoon Li Ka-shing, who retired as chairman of his business empire last year, has kept his top spot on the Forbes’ Hong Kong rich list for the 21st consecutive year, with a net worth of US$31.7bn despite a fall of 12% from 2017. Lee Shau-kee, Chairman of Henderson Land Development (00012.HK), came in second on the list with a net worth of US$30bn, down 8.8% from the previous year.
Despite this decline, 20 out of the 50 richest still managed to grow their wealth in 2018, and this is expected to pick up again in 2019. Lee Man-tat, Chairman of Lee Kum Kee Group, a leading player in Hong Kong’s soy sauce industry, jumped from eighth to the third position, with a net worth of US$17.1bn, more than double his estimated wealth a year before, due to the sale of some of the family’s businesses.
New Tax Weight for China’s Wealthiest
Wealthy Chinese have been sheltering assets and income in overseas trusts in light of new taxation that came into effect in January this year, which includes provisions targeting offshore holdings. Under the new rules, owners of offshore companies will not only pay taxes on dividends they receive, but also face levies of as much as 20% on corporate profits, from as low as zero previously.
Additionally, wealthy Chinese holding overseas passports will no longer be able to avoid paying taxes, as all holders of Chinese household registrations will be taxed on their global incomes. A new 183-day rule of residency has been introduced, making it so that individuals who are resident in China for 183 days or more a year are considered tax residents, subject to taxes on their global income. This replaces the previous five-year period.
According to Woon Shiu Lee, Head of Wealth Planning at Bank of Singapore, since the second half of 2018 there has been a 35% surge in Chinese clients’ enquiries on the establishment of offshore trusts that offer “tax-planning opportunities” by giving ownership to third-party trustees. The new tax laws are meant to reduce the tax burden on lower-and middle-income people by adding more weight to the wealthiest.
Although rules are reinforced to prevent money flowing out of the country, Boston Consulting Group estimated that Chinese money held abroad amounted to US$1trn at the end of 2018, as some of China’s richest had anticipated the tax reform and were already using trusts. This compares to a total personal wealth of US$24trn nationally. In September 2018, China also implemented an international data-sharing agreement called the Common Reporting Standard, making overseas wealth more visible to the mainland government.
Argentina, Panama, Paraguay and Uruguay to Share Tax Information
Argentina, Panama, Paraguay and Uruguay have joined forces to create a Latin American initiative to tackle tax evasion and corruption by sharing tax and bank account information, signing the Punta del Este Declaration at the end of 2018 in Uruguay. Governments have also agreed to “consider the possibility” of making wider use of the information provided through tax information channels for other law enforcement purposes as permitted under the multilateral Convention on Mutual Administrative Assistance in Tax Matters and domestic laws, and advancing more effective and real-time access to beneficial ownership information in Latin America.
Mexico has not participated in the agreement, although the president has promised to make the work towards an anti-corruption agenda a priority, supported by the Organisation for Economic Co-operation and Development.
The Bahamas Strengthened Compliance Laws
Following a recent EU listing of the Bahamas as non-cooperative with Anti-Money Laundering and Countering Financing of Terrorism procedures, the country has taken measures to get back on track and rebrand its wealth management industry. “Clear Choice” has been announced as the new brand for the Bahamian financial services sector (which accounts for 15% of the country’s GDP) to reaffirm the country’s commitment to compliance. The Bahamas has outlined its commitment to changes in legal and regulatory regimes in detail, making the compliance process more complex for its international financial centre, but aligning with international standards.
These changes include the passage into law of the Multinational Entities Financial Reporting Act, which sets out a comprehensive framework for country-by-country reporting in line with the Base Erosion and Profit Shifting (BEPS) initiative; the initiation of Automatic Exchange of Information with 35 jurisdictions (19 of which are in the EU) in accordance with the Common Reporting Standard, with the first exchanges taking place in September 2018; the passage of the Commercial Entities (Substance Requirements) Bill in Parliament, which addresses EU concerns regarding entities having economic substance; and the Beneficial Ownership Register Bill 2018 as well as the Removal of Preferential Exemptions Bill 2018 to address concerns about ring-fencing.
The Bahamas also initiated a complete overhaul of legislation governing investment funds’ regulatory framework, including an updated Investment Funds Act as well as some forthcoming changes to the overall securities industry legislative regime.
Australians are Getting Wealthier
Australia is the fifth wealthiest country in the world on a per capita basis (US$279,000 per capita), behind Monaco, Liechtenstein, Luxembourg and Switzerland, with almost three out of every 10 Australians being worth US$1m or more. According to consulting firm New World Wealth, this category group holds 28% of the total wealth of the country, amounting to a total of US$6.1tn in net assets, up dramatically from US$3.4tn 10 years ago. This figure is expected to reach US$10.4tn in the next 10 years.
Looking at the super-wealthy, the number of billionaires in Australia is also set to double, from 36 to 80 individuals, in less than a decade. The large growth of wealth was and will continue to be helped by rising real estate values, especially on the East Coast, a strong local equity market, and high-performing industry sectors including financial services, professional services, real estate, transport, IT, telecoms and healthcare.
Also expected is strong migration to Australia of wealthy individuals, attracted by a safe and free society with strong links and business ties to Asia, as well as the absence of inheritance taxes and arguably the most developed political system.