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Tuesday, October 14, 2008 - Vol. 10, No. 245
Today's comment is by Bob Bauman JD, former U.S. Congressman and long-time Legal Counsel and Senior Writer for The Sovereign Society.
As Europe comes to share in the global financial meltdown, the elected elite in the EU are falling all over themselves to find someone to blame for this banking mess. Naturally, the United States is their primary bogeyman.
Indeed, U.K.'s Gordon Brown, France's President Nicolas Sarkozy and Italy's Prime Minister, Silvio Berlusconi, have all argued in recent days that the banking crisis was "made in the U.S.A."
But an article in today's New York Times finds that many European bankers were just as guilty. In fact, some of them may be even more guilty than the Wall Street fools who manufactured the fraudulent subprime mortgage derivatives because the Europeans bought by the billions.
According to one commonly used yardstick to measure borrowing, the ratio of assets to equity, some European banks employed more than twice as much leverage as their American counterparts.
"The same mechanisms that led to the crisis in the United States were operating here," said Arnoud Boot, a professor of finance and banking at the University of Amsterdam. "It's totally misplaced for European leaders to put the blame on the Americans."
The Times article states: "UBS, the Swiss giant, for example, bought tens of billions of dollars in American subprime debt in a bid for higher yields, only to find out too late that it was toxic, generating huge losses at UBS over the last year."
I Hate to Say "I Told You So" But...
Which allows me to say: "I told you so" - at least as it pertains to one the world's largest (and as it turns out stupidest) banks, UBS.
On April 07, 2008 in my blog I wrote about "The Americanization of UBS." And I asked then: "What are we to make of the crass stupidity and misjudgment on the part of the mis-managers of the Union Bank of Switzerland - UBS!?"
At the time, UBS had been forced to reveal their shaky or bad investments valued around US$100 billion. These horrible decisions lead them to write-down over US$42.5 billion - more than any other bank in the world at the time. UBS had to be bailed out with a US$13 billion cash infusion from the Government of Singapore Investment Fund and others.
Only "Americanized" Swiss Banks Feel the Heat
But while the two leading Swiss banks, UBS and Credit Suisse, expanded their operations into the United States and were burned for their efforts, most Swiss banks remained safe and untouched.
In the second quarter of the year, UBS watched as 43.9 billion Swiss francs (US$39.6 billion) flowed off their books as savvy customers took their assets elsewhere. Thousands transferred their funds to sound cantonal banks and the few remaining legendary Swiss "private" banks.
Patrick Odier - senior associate of private bank Lombard Odier Darier Hentsch - told Swiss newspaper Le Temps Thursday that clients were flocking to private bankers to safeguard their assets.
"The numerous clients who are inquiring currently at our private banks are here seeking refuge, advice and expertise in asset investments," he said.
But There's No Banking Crisis in Switzerland
Switzerland is NOT facing a banking crisis. On the contrary, Swiss banks are coping with the global financial crisis, the head of Switzerland's banking association said on Sunday.
"I am convinced that no Swiss bank will collapse," Pierre Mirabaud told Swiss newspaper Sonntag. "The Swiss banking system is healthy. The cantonal banks, the regional banks, the private banks - they are all doing very well."
"Switzerland is better positioned than many other countries. You cannot talk about a banking crisis here. We have more than 320 banks. Only the two big banks are directly affected by the crisis," he said. But Mirabaud also sounded an upbeat note on UBS and Credit Suisse, saying they were no longer in the eye of the storm.
As Always - Swiss Stands for Safety
Historically, over the centuries, Switzerland has remained the place to safeguard your cash and personal assets, especially in times of trouble. We think that still holds true.
The fact that both UBS and, to a lesser extent, Credit Suisse got into trouble simply proves they abandoned their traditional conservative Swiss banking principles in the race for easy money.
Even in the current crisis, Swiss banks manage one third of all assets the world's offshore wealth. Total cash assets of the Swiss banking system are estimated at US$2 trillion or more, while the total value of security deposits is well over US$3 trillion. Assets under Swiss management have risen significantly in recent years, reaching a high of US$4 trillion in 2007, according to the Swiss National Bank and the Swiss Bankers Association.
In recent weeks we have assisted Sovereign Society members and A-Letter readers seeking safer banking havens, many of them seeking to open Swiss bank accounts.
Based on our long experience, (we never have recommended UBS and Credit Suisse), we prefer private contacts with sound Swiss banks that have never "Americanized" their businesses. We recommend banks that adhere to the strict Swiss bank secrecy law that protects your financial privacy.
If you need help with Swiss banking, let us hear from you.
BOB BAUMAN, Legal Counsel
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