Managers are wary of selling them loans or products, and compliance costs have risen
The hens that lay the golden eggs of private banking have lost their shine. Frightened by the sanctions, wealth managers now treat all wealthy Russian clients with suspicion. That limits their ability to sell them lucrative loans or new investment products. Rising compliance costs will turn these once profitable customers into a financial burden.
Russian wealth is hidden in many places. But the crackdown is especially damaging for Switzerland, the world’s largest center of offshore wealth. Russians hold between 150 billion and 200 billion Swiss francs (146-195 billion euros) in the country’s financial institutions, according to the Swiss Bankers Association. This figure is potentially almost half of the global investable wealth of Russian plutocrats, which the Boston Consulting Group puts at $500 billion.
True, the figure is just over 2% of the 8.7 trillion Swiss francs (8.5 trillion euros) that banks supervised in 2021. But the proportion doubles if domestic assets are excluded. UBS, Credit Suisse and Julius Baer collectively hold more than $100 billion of Russian money worldwide, we estimate.
Wealth managers used to view high-profile Russian clients as particularly lucrative because of their tendency to engage in exotic and expensive transactions. These included the use of mega-yachts and private jets as collateral for loans, allowing bankers to charge gross margins of up to 700 basis points, compared with less than 100 basis points for so-called Lombard loans or portfolio-backed mortgages. , according to industry estimates.
Those days are over. The European Union has frozen the assets of billionaires Mikhail Fridman, Petr Aven and nearly 900 other tycoons and politicians, which Bern is also applying. With rapidly evolving regulations, wealth managers are viewing all Russian clients as potentially subject to restrictions, bankers and industry sources say.
As a result, bankers are reluctant to allow Russian clients to transfer ownership of securities or move money elsewhere. They are also pressuring customers to quickly repay outstanding loans, further straining relationships. This can put a dent in the income of wealth managers. Meanwhile, mindful of the hefty fines levied by the United States for violating sanctions, private banks are incurring additional costs by screening individual accounts to make sure they have no links to blacklisted individuals or companies. “We have people working on this 24 hours a day,” says a banking source.
Over time, wealthy Russians who can move their money could flee to other hubs like the United Arab Emirates. For now, however, private banks in Switzerland and elsewhere will have to shoulder the excess financial baggage.