Why banking in Switzerland is safer
The recent collapse of two regional US banks – Silvergate Capital Corp and Silicon Valley Bank – reminds us again that the choice of a safe bank in a safe country is of utmost importance for every prudent investor. While both banks had a significant exposure to risky businesses related to crypto or tech startups, many banks in the US and other countries face the same structural challenges.
Monetary tightening after a period of strong asset growth, a slowing economy, deposit outflows, and unrealized losses on securities portfolios represent strong headwinds. According to the Federal Deposit Insurance Corporation (FDIC), unrealized losses on banks’ balance sheets as of Q4/2022 amounted to roughly 620B USD. If fully realized, these losses would drive the Tier 1 capital ratios of several US banks below 8%, leaving them significantly underfunded without a large capital increase.
Throughout this article, we will discover why safe custody of assets in a Swiss Private Bank, managed by an independent wealth manager with a strong long-term track record is in our view the gold standard for every serious investor.
Switzerland has a long tradition in private banking and many of the world’s leading institutions are domiciled in Switzerland. A stable economy with low cyclicality, low inflation, a neutral political status, a strong currency, and a reliable legal system with strong asset protection are some reasons why Swiss private banking is highly regarded around the world. Switzerland’s public debt to GDP ratio is below 40%, which is one of the lowest globally. Switzerland’s budget and trade balance have been positive for decades.
Inflation in Switzerland has been structurally low for decades and is still one of the lowest globally with core inflation at 2.4% as of February 2023. Low inflation made the Swiss National Bank reluctant to tighten monetary policy materially. Modest yield increases resulted in manageable results on bond investments of traditional banks, in strong contrast to what is currently happening in the US.
Because of these robust economic characteristics, the Swiss Franc is strong and considered a safe-haven currency. Over the past 20 years, the USD has lost more than 40% against the CHF and about 75% over past 50 years. Holding Swiss Francs in a portfolio can reduce overall portfolio risk by providing diversification benefits. The currency has historically displayed low correlation to other major currencies and asset classes.
When it comes to safe custody of physical gold, Switzerland has been a safe haven jurisdiction for centuries. As one of the world’s largest gold exporters, Switzerland has a well-established system for safe custody of physical precious metals in secured and insured facilities across the country. This enables investors to hold direct investments in physical gold bars or coins off-balance as segregated assets in a low-risk country in a low-risk bank. As opposed to holding a certificate saying you own gold, holding physical gold in a secure facility is the safest option available to store parts of one’s wealth for many years.
Why a Swiss Bank?
Private banks in Switzerland are typically well-established institutions with a long history, focused on private wealth management, which is a low-risk, fee-based business. They usually don’t have larger operations in corporate lending or investment banking, which could eventually result in material losses on investment portfolios during economic downturns. Swiss private banks are typically very well capitalized, highly profitable, have low leverage, and solid balance sheets. The graph below shows Tier 1 capital ratios of our Swiss partner banks compared to averages in other countries.
Investor protection is deeply anchored in the Swiss law, making it very challenging for creditors to eventually reach assets held in a Swiss bank. Customer service quality is a leading feature of Swiss private banks. Clients have a dedicated account manager and access to senior management officials for wealth planning and tailoring customized asset management services. Finally, it is very straightforward and not complicated to open an individual, corporate, or trust account at a Swiss bank.
Why Alpen Partners?
At Alpen Partners we have close relationships with the best Swiss banks and have the knowledge and resources to help investors find the right bank. As an independent asset manager we have the freedom to select the most attractive investments, and our interests are fully aligned with those of our clients. We have a systematic approach to investing and focus on capital efficient stocks with high margins, high capital returns, strong balance sheets, and an attractive growth profile. As opposed to most competitors, we are benchmark agnostic. This means that the expected return of an investment is always the decisive factor for us, and not the eventual membership in a stock or bond index. Our portfolios are relatively concentrated and predominantly consist of direct investments. We view this as the best approach to achieve high returns in a cost-efficient way, with high transparency and zero balance-sheet risk. We offer a broad range of strategies in USD, Euro, or Swiss Franc, and a comprehensive range of services for wealthy families by combining proprietary expertise with an external pool of first-class advisors.
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