I’m utterly unsurprised at this; if anything, I’d’ve expected the scale of withdrawals to be much bigger.
UBS AG, the world’s biggest money manager for the wealthy, may report tomorrow that private-banking clients removed funds for the first time in almost eight years in the second quarter as losses at the securities unit mounted.
Clients probably withdrew a net 5 billion Swiss francs ($4.6 billion) in the period, according to the median estimate of 10 analysts surveyed by Bloomberg. UBS’s wealth management units, which oversee 1.84 trillion francs, attracted an average of 37.9 billion francs in each quarter last year.
Bloomberg’s Elena Logutenkova blames the withdrawals on "an erosion of confidence in UBS after it amassed 25.4 billion francs of net losses", "claims that it helped clients evade American taxes", and the fiasco in auction-rate securities.
But much more important is the fact that a UBS private banker, Bradley Birkenfeld, gave enormous amounts of confidential information to US authorities, and the fact that UBS is going to stop providing offshore private-banking services to Americans.
The problem with UBS, from a private-banking perspective, is now that it’s too big, and too global. So long as Swiss banks stayed in Switzerland, the Swiss government certainly wasn’t going to ask any questions about their clients. But UBS has a presence in dozens of important jurisdictions around the world, and its clients in those countries simply can’t assume any more that their assets and personal information are safely being kept away from prying eyes in Zurich.
From the point of view of a high net worth individual, placing your money with a big bank is a good thing: it’s safer there. But placing your money with an enormous bank doesn’t make it any safer, and might in fact make it a more obvious target. Expect the outflows from UBS to continue, especially as more information trickles out about the controls that UBS may or may not have had in place within its private banking unit.