By Gold, Jacqueline S.
American Banker , Vol. 164, No. 227
With Bank of New York under the sharp scrutiny of federal investigators on suspicion of Russian money laundering, and John Reed just back from admitting to Congress that Citigroup mishandled several high-profile accounts, most private bankers would probably be happy to duck for cover.
Not Maria Elena Lagomasino. The Cuban exile and former librarian who runs Chase Manhattan Corp.'s 2,000-person private banking operation surveys the scandal-pocked landscape and sees nothing but opportunity. "There is a tectonic shift going on in private banking worldwide," she says, with excitement in her slightly accented speech.
Ms. Lagomasino, 50, is referring to 25 years of political and economic change that affects the way private banking is done. Domestic markets around the world have grown in sophistication and have become safer places for high-net-worth people to stash their funds. Meanwhile, governments' pressure on banks to know their customers and the kind of business they transact has grown tremendously.
"Huge money is not leaving the country anymore," Ms. Lagomasino said in a recent interview at Chase's art-filled private banking headquarters in midtown Manhattan. "Because of the European tax conformation, there is pressure on Switzerland, which has all this money not declared."
This has had significant implications for UBS AG, which has $414 billion of assets under management in its private bank, and for Credit Suisse Group, which has $288 billion. Ms. Lagomasino refers to the two companies as "the big gorillas" of private banking. "They owned secrecy like Volvo owned safety in automobiles." Now, she says, "the offshore market they are good at is changing. That's why it's such a fabulous time."
Paul Rimmer, a spokesman for Credit Suisse Private Banking, acknowledged Ms. Lagomasino's point. "The classic advantages of Switzerland -- economic security, a strong currency, the banking secrecy laws, and discretion -- are no longer as important as they were some years ago. These days private banking clients invest their money more according to performance and service," he said.
At UBS, these changes have already dealt a financial blow. The company reported a 2.6% decline in private banking assets from the second quarter to the third, mainly due to investment performance, the company said. Chief financial officer Luqman Arnold said last week that growth in the private banking division is unlikely to pick up before next year.
A UBS spokesman said, "We see a marked increase in the demand for onshore versus offshore private banking services. To serve that demand in the United States, we've increased both the scope and the size of our private banking operations."
A report on world wealth in 1997 by Merrill Lynch & Co. and Gemini Consulting further supports Ms. Lagomasino's view. The wash of assets from offshore to onshore accounts is perhaps most keenly felt in Europe, with its drive for monetary union and Continental free trade. Among other things, the report said, high-net-worth individuals "are keeping more of that wealth onshore to exploit local investment opportunities." In 1997 these trends helped keep $3.3 trillion onshore, compared with $2.2 trillion offshore, the study said.
"The governments of these countries are setting up regulatory and tax environments to encourage domestic investments," the report found. "Strong local economic growth in many areas has boosted the number of wealthy onshore entrepreneurs. ... This is the case in mature European markets, where onshore investment is growing strongly at the expense of key offshore centres such as Switzerland."
For Chase, with $136 billion of assets under management in its private bank, the news could not be better. Chase and other U.S.-based multinational banks such as Citigroup Inc., with $128 billion of assets under management in its private bank, and J.P. Morgan & Co., with $73 billion, "have always had an open, competitive onshore game," according to Ms. …