At Risk

At Risk Amount (AR)....now this term has a new usage: a nice euphemism for tax dodging and tax dodgers.

See this Reuters article on how: "Tax deals to cost UBS 10 percent European client assets"
http://www.reuters.com/article/idUSTRE6AF2U120101116 On Page 7 of Jürg Zeltner's Investor Day presentation, in the footnotes, is: "We believe that CHF15-40 billion are still at risk as a result of changes in tax regulations."

It's wonderful to know that you can potentially lose say $40b in assets and you can say "no biggie", just footnote it. By way of comparison, $40b is roughly twice the amount that UBS estimates "clients from neighboring countries have withdrawn over CHF 20 billion over the last twelve months". Not picking on UBS, as this is an industry wide issue and not just for Swiss or Europeans either. Still want to be the "new Switzerland" of wealth management?

Look at some of the salient issues and we have some real heady stuff to deal with.

Firstly, how does one actually determine one's AR amount? It used to be only outsiders (analysts/government/revenue/auditors) tried to put a number on AUM that was at risk for fiscal reasons. It's rare that any bank officially comes out and quantifies the AR amount. We all know it exists, its just we can't quantify it. So what's scarier? Having at risk assets, or you know it so well that there's actually a number for it?

OK, so I have say a 100 British or German nationals with accounts in Switzerland. Are all 100 deemed "at risk" because they are Brits or Germans? If not, what percentage? How did you arrive at that percentage? Guessing? Some formula or marker/trait? Did you have first hand knowledge or an admission of guilt? By having a AR number, doesn't that mean that you are knowingly harbouring, if not aiding and abetting, "risky business"?

Secondly, the tax witch hunts are triggering either a capture/ferreting out of the fiscal rascal; a surrender/repatriation/"amnest-icized" under some tax amnesty scheme ; or thirdly, a flee to deeper darker places. Now some of the money exiting will be "declared" and end up back in the home country. Now if your a global player, then surely you could repatriate the funds into your domestic UK or German booking center. But since they're talking about outflow/exit, the money is "hot"/undeclared and not bankable (or you're an offshore business sitting onshore and failed to see the writing on the wall years ago). Shouldn't the course of action to be proactively closing these accounts instead or waiting for the risk to exit at their leisure? An ounce of prevention....?

But inevitably some money will flee to another jurisdiction and we in Asia will be on the short list of possible destinations. Remember all that flight capital you were so keen on booking these past years? As Singapore and rest of Asia continue to sign up for OECD information exchange treaties (See my 12 Monkeys entry: ), the same thing that is happening to the Swiss/Euro banks has and will happen to the Asian banks, unless you happen to think your AR amount is zero that is. Some money will have to exit sooner or later (see my White is Good entry:).

And we need not look at European customer base to see risk. How much of the purported $460b of illicit Indian money (according to the Global Financial Integrity organisation http://india.gfip.org/) is sitting with your bank?