Monthly Archives: April 2014

Diversification of Bank Relationships from the Customer Perspective (and also from the Independent Asset Manager)

As an independent wealth manager entrusted with wealth built up over decades (and often longer) it is important to keep the focus on risks.

One risk is that of having a clients assets locked up with one bank and that bank then going into administration. Large banks try to force their independent asset and wealth managers to bring ALL the customers assets to them. This is a fundamental mistake and counter to any logic of never putting all eggs in one basket. In Switzerland the salespeople in charge of independent asset managers (such as myself) are directed to implement this, in my view, very unfavorable business practice. The reason is simple: Salespeople are paid a bonus depending on new assets. They don’t get a bonus for common sense implementation or helping a client reduce risk, as far as I know.

Anyone watching geopolitical developments or taking a look at what recently happened in Cyprus with wealthy clients assets (Cyprus’s central bank said in July 2013 that 47.5 percent of deposits exceeding 100,000 euros in Bank of Cyprus would be converted into equity to recapitalize the troubled lender as part of an international financial bailout for the island.1) will no doubt be aware that a country’s banks or a particular bank can fast be put on sanctions lists or the state can enforce haircuts on assets held at the bank to bolster its capital or liquidity.

That is why I recommend my clients use banks, if not in different countries, then in different market segments. It makes a lot of sense to have cash balances at banks that don’t risk a lot of their balance sheet on property prices, i.e. mortgages. Neutrality of Switzerland historically meant that the chances of being put on a blacklist or sanctions list were slim. After all, if you’re not taking sides, why would someone punish you. That has changed to some extent in the last 10 years as the Euro-US Block has become more aggressive in its tactics and dependence of Swiss Banks on infrastructure abroad (or the possibility of the likes of the NSA to eavesdrop on international bank payments data etc), and access to it, has changed dramatically.

The fact that certain banks do not respect this fundamental risk diversification aspect and want to force customers, or their advisers to put all eggs in one basket is troubling.

A real world example: If the customer is often spending money in a certain country he should do this from an account with low fees, good credit card or debit card conditions. Often the banks offering those are large global players or local players. To decide on which bank is ideal for the clients long term wealth protection and increase different factors come into play. Feel free to contact me for further discussions via mail, email or phone number on the main website depending on your preferences and security and privacy needs.

Another example of an issue a UK customer would encounter with a current or savings account in the UK 2):

The Financial Services Compensation Scheme (FSCS) protects individual savers up to £85,000 for each savings institution. It therefore makes good sense to divide money on deposit between several accounts with different organisations, keeping each account below this limit.

Crucially, however, the compensation limit is per person, per authorised institution. Therefore you need to be careful that you do not hold more than one account under the same banking brand. It is not always obvious which organisations are linked via the same parent company, but you can check out a list at the Financial Conduct Authority’s website at

Certain savings institutions are not covered by the FSCS. Again, there is a list available at

If you have a large amount of savings it may not be practical to hold many different accounts, so it’s worth considering National Savings & Investments (NS&I), which is backed by HM Treasury so is very safe. Sometimes securing capital is more important than the interest rate gained.


In Switzerland: A maximum of CHF 100’000 are privileged in case of bankrupcty proceedings per creditor. Article 37a of the Swiss Banking Law states:


References 1)  2)

Forces behind the Bid in the Equity Market

In addition to central banks who have been aggressively increasing their equity positions (see my post on the SNB equity position) there are now large pension fund systems that are moving toward more international equity proportions and decreasing their bond portfolio size.

The state pension fund of Japan manages EUR 908 billion (Milliarden). Of that 67% were in bonds, for example Treasuries. The plan now is to reduce that to 60%. In future 12% of the fund shall be invested in japanese equities and 12% in international (foreign) equities. That’s over EUR 100bn each.

The reason behind Japans’ move is one that works across the developed world. It’s not possible to generate the returns needed with bonds. However most pension fund systems have a large proportion in bonds, thus leading to a ticking time bomb of sorts.

Interesting in this contect: The holdings of US treasuries in Belgium (where they are held by Euroclear for large institutions/banks/central banks) has been exploding. This could mean large amounts of US treasuries are being placed so that they can be sold without alerting the US as to which country is actually selling.

The time has probably never been better to sell, considering the printing press is slowing and the price is still inflated…

Why Europe isn’t as good for Business as the USA

In a recent article which appeared in the FAZ today, Wolfang Eder (CEO) listed a number of reasons his employer Voestalpine was investing EUR 50 million in an auto components manufacturing plant (Georgia) and a whopping EUR 550 million in a steel plant (Texas)  in the US and not in Austria.

1. The Economics Minister sent a very personalised letter to CEO Eder offering help should he require any assistance whatsover. He’d never received any such letter from EU countries.

2. Energy costs: Costs for natural gas are much cheaper, thanks to fracking, than they are in Europe where environmental issues have priority, or are more expensive to handle.

3. Wage costs: Due to social welfare and benefits costs they are 30% higher in Europe than in the US.

4. Land cost: Land is 20x more expensive in certain EU countries than in the mentioned US regions.

5. Regulatory cost: Environmental and climate policies of the EU are constantly changing and becoming increasingly burdensome for manufacturers. For example with tough CO2 emmission targets.

These are some of the most important reasons why the question of location was made in favor of the US over the EU and Austria in particular.


Economy: Reasonable Prospects of a Pick-up this Year says RBA

Thought this statement from the Reserve Bank of Australia is a good gage of where we currently stand regarding the state of the world economy.

Growth in the global economy was a bit below trend in 2013, but there are reasonable prospects of a pick-up this year. The United States economy, while affected by adverse weather, continues its expansion and the euro area has begun a recovery from recession, albeit a fragile one. Japan has recorded a significant pick-up in growth. China’s growth remains generally in line with policymakers’ objectives, though it may have slowed a little in early 2014. Commodity prices have declined from their peaks but in historical terms remain high.

Financial conditions overall remain very accommodative. Long-term interest rates and most risk spreads remain low. Equity and credit markets are well placed to provide adequate funding, though for some emerging market countries conditions are considerably more challenging than they were a year ago.

source: Glenn Stevens, Governor, Reserve Bank of Australia

date: April 1st, 2014

Thurgauer Kantonalbank IPO – Reasons to be Cautious

These two figures show why TGKP may not be a good investment. See my previous post about the Thurgauer KB IPO.

If we took the neighbouring cantonal bank St.Galler KB as a proxy and looked at its loan growth (CAGR +5.6%) and also at Assets under Management compound annual growth rate (AuM CAGR) of -0.8%, we can see that the valuation put on TGKP participation certificates may be aggressive as the eastern part of Switzerland isn’t seeing good growth rates for underlying business.

Fig 1 St.Galler KB Loans (SGKN)


Fig 2 St.Galler KB Asset under Management (SGKN)



As the Thurgauer Kantonalbank hopes to place another 7.5% in the future, so after the 12.5% this week, one can only hope they don’t set the price too high!