The credit crunch has harmed a number of banks worldwide and Switzerland has not missed its fair share of problems. The second largest bank in the country has announced that it is making a loss in the final quarter of the year.
But this problem has not just originated in America, because of the amount of Sub-prime mortgages that were sold and the debt spread around other banking institutes. The majority of the problems and the money that the bank has had to put aside are from the hiding of funds from America of those citizens who are not paying the correct amount of income tax.
The bank has set aside $534 million, which in banking terms is not excessive, but this comes on top of the money paid for previous year’s tax avoidance by American account holders.
Switzerland’s bank history
Switzerland is historically a place to hide money and this era is stopping with the recent Department of Justice looking into the tax avoidance of customers. The largest bank in Switzerland paid $780 million dollars in 2009 to avoid criminal prosecutions in a similar problem.
However, this isn’t the only problem the bank has faced in recent times. A recent pay-out was given on some mortgages that were provided by the bank. To avoid prosecution, an agreed sum of money given to the effected party.
What the future holds
However, this news has not dampened the investors in the banking market with the shares just dropping 0.1% after the news of the current losses made.
This indicates that many investors see this as just a bump in the road of banking in Switzerland. They obviously don’t see that this is going to cause future problems.
Nevertheless, the Chief Executive Officer for the bank did apologise, for whom he described as a group of employees that had helped open 22,000 accounts for American citizens, and hid the trail to avoid paying any form of tax to the American government for the monies held in these accounts.
This is many accounts to have opened and the practice and procedures suppressed until pushed by the Department of Justice. This does question the procedures for account openings, how so many of these accounts could be opened and not filed correctly.
For me this brings into question the ethics of the companies involved, but unfortunately, Switzerland has had a long-term relationship with the hiding of funds from other countries. Therefore, in the long term this will not affect the banking industry in this country; it has now cleared its name and is striving for a better and brighter future, hopefully with a profit at the end of the year and not the losses that they have suffered this last quarter.
However, this news does show the importance of abiding by the global regulations to prevent any potential prosecution in this banking sector. America is certainly taking this area seriously and this is evident in the potential prosecutions facing a number of institutions over the Libor rating fixing.