Switzerland shifts gold off the books in preparation for Basel III

Swiss banks move private investors to institutional accounts.

Contrary to popular myth, there are at least a few Swiss people who won't shy away from a fight. One of them is Nicolas Pictet, chairman of the Swiss Private Bankers Association.

The American Internal Revenue Service (IRS) has been duffing up the Swiss banking industry for quite some time now. Some of the biggest Swiss banks have had to surrender their US client list to the IRS under subpoena, and the US tax authority has been dogged in its pursuit of those US citizens they have found to be using the international banking system to avoid domestic tax requirements — even little old ladies.

Now, Pictet has decided enough is enough… it is time for the banks in question to stand up and if not hit back, at least defend themselves properly.

This week we saw another move that is likely to alter the perception of Swiss banks. UBS and Credit Suisse, two of the banks at the centre of the IRS investigations, significantly raised their charges for holding gold — making it very unattractive for private individuals to deposit the precious metal with them.

The primary reason for the decision was not to stick it to the IRS, of course. Rather it is to move gold off the banks' balance sheets ahead of the introduction of the Basel III rules, which require them to change the ratio of capital to assets.

The banks are encouraging clients to move their gold deposits to “allocated” accounts, which sit outside the banks’ balance sheets and generally attract far larger fees, and are primarily aimed at institutional investors.

The rise in charges on “unallocated” will undoubtedly discourage private individuals from keeping gold on deposit with Swiss banks. One gold market analyst told me the banks were now “terrified of US clients, who account for a significant proportion of their client base”.

“The Basel III requirements are providing the banks with a good excuse to get rid of their American clients,” they said.

So is it a case of Swiss banks reflecting some of the IRS’s heat onto its US clients? That would probably be to cut off their nose to spite their face, since there are plenty of other places investors can keep their precious metals.

But it will undeniably cause private investors, both in the US and elsewhere, problems. For many, there is no more solid investment than bars of gold, and nowhere more secure - or private - to keep them than a Swiss bank.

Either way, those banks are changing their rules. And with Basel III deadlines ramping up we are likely to see even more drastic changes to the private banking landscape.

Most of those changes are likely to further weaken the relationship between Swiss banking institutions and their clients. As Pictet told his compatriots: “[Switzerland] runs the risk of being dropped from the squad and finishing the race out of time, in the complete indifference of the political world.”

While shifting gold deposits off the balance sheet might help in some way to pacify the IRS, the result may well be the erosion of Switzerland’s position in the global banking world – leaving a lot of people holding out for a turnaround in the cuckoo clock market.

Photograph: Getty Images

James Ratcliff is Group Editor of  Cards and Payments at VRL Financial News.

Photo:Getty
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Why isn't Labour putting forward Corbynite candidates?

Despite his successes as a candidate, the organisational victories have gone the way of Corbyn's opponents. 

The contest changes, but the result remains the same: Jeremy Corbyn’s preferred candidate defeated in a parliamentary selection. Afzhal Khan is Labour’s candidate in the Manchester Gorton by-election and the overwhelming favourite to be the seat’s next MP.

Although Khan, an MEP, was one of  the minority of Labour’s European MPs to dissent from a letter from the European parliamentary Labour party calling for Jeremy Corbyn to go in the summer of 2016, he backed Andy Burnham and Tom Watson in 2015, and it is widely believed, fairly or unfairly, that Khan had, as one local activist put it, “the brains to know which way the wind was blowing” rather than being a pukka Corbynite.

For the leader’s office, it was a double defeat;  their preferred candidate, Sam Wheeler, was kept off the longlist, when the party’s Corbynsceptics allied with the party’s BAME leadership to draw up an all ethnic minority shortlist, and Yasmine Dar, their back-up option, was narrowly defeated by Khan among members in Manchester Gorton.

But even when the leadership has got its preferred candidate to the contest, they have been defeated. That even happened in Copeland, where the shortlist was drawn up by Corbynites and designed to advantage Rachel Holliday, the leader’s office preferred candidate.

Why does the Labour left keep losing? Supporters combination of bad luck and bad decisions for the defeat.

In Oldham West, where Michael Meacher, a committed supporter of Jeremy Corbyn’s, was succeeded by Jim McMahon, who voted for Liz Kendall, McMahon was seen to be so far ahead that they had no credible chance of stopping him. Rosena Allin-Khan was a near-perfect candidate to hold the seat of Tooting: a doctor at the local hospital, the seat’s largest employer, with links to both the Polish and Pakistani communities that make up the seat’s biggest minority blocs.  Gillian Troughton, who won the Copeland selection, is a respected local councillor.

But the leadership has also made bad decisions, some claim.  The failure to get a candidate in Manchester Gorton was particularly egregious, as one trade unionist puts it: “We all knew that Gerald was not going to make it [until 2020], they had a local boy with good connections to the trade unions, that contest should have been theirs for the taking”. Instead, they lost control of the selection panel because Jeremy Corbyn missed an NEC meeting – the NEC is hung at present as the Corbynsceptics sacrificed their majority of one to retain the chair – and with it their best chance of taking the seat.

Others close to the leadership point out that for the first year of Corbyn’s leadership, the leader’s office was more preoccupied with the struggle for survival than it was with getting more of its people in. Decisions in by-elections were taken on the hop and often in a way that led to problems later down the line. It made sense to keep Mo Azam, from the party’s left, off the shortlist in Oldham West when Labour MPs were worried for their own seats and about the Ukip effect if Labour selected a minority candidate. But that enraged the party’s minority politicians and led directly to the all-ethnic-minority shortlist in Manchester Gorton.

They also point out that the party's councillor base, from where many candidates are drawn, is still largely Corbynsceptic, though they hope that this will change in the next round of local government selections. (Councillors must go through a reselection process at every election.)

But the biggest shift has very little to do with the Labour leadership. The big victories for the Labour left in internal battles under Ed Miliband were the result of Unite and the GMB working together. Now they are, for various reasons, at odds and the GMB has proven significantly better at working shortlists and campaigning for its members to become MPs.  That helps Corbynsceptics. “The reason why so many of the unions supported Jeremy the first time,” one senior Corbynite argues, “Is they wanted to move the Labour party a little bit to the left. They didn’t want a socialist transformation of the Labour party. And actually if you look at the people getting selected they are not Corbynites, but they are not Blairites either, and that’s what the unions wanted.”

Regardless of why, it means that, two years into Corbyn’s leadership, the Labour left finds itself smaller in parliament than it was at the beginning.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.