Swiss bank accounts are not absolutely safe anymore, as several clients of the Portuguese group Banco Espirito Santo are finding out at their own expense. In 2010 and 2011, important Portuguese clients were incited by their banking advisors to put their savings in their Swiss branch, dedicated to private funds management. It made no difference, were they told, as they were sold the prestige of the Swiss banking hub. But, as we know, last July Portugal’s second bank went bankrupt. The State has injected 4 billion euros into it, but not all of the bank’s clients will recuperate their savings. Tough luck for the Swiss branch clients: they will be the hardest hit with most of them losing almost all of their deposits. Of course, Banco Espirito Santo had used those savings to invest in speculative products...
Let this serve as a lesson: Safety does not reside in Switzerland or in any other country recognised for its economic and financial soundness, but in the financial intermediary and the type of financial products in which to invest one’s savings. A critically failing bank does not become a sound institution just by crossing into Switzerland. And a rotten asset does not become a good investment if bought in Zurich.
But banks often play this marketing tool with their wealthier clients. In Portugal, to the point, Deutsche Bank became in August 2011 a simple branch of its German headquarters and, thus, is not under Portuguese local authorities anymore. And the German bank’s local advisors’ argument is quite simple: Your money is deposited in Germany; hence, if your local banking system goes under, you are protected; and, if the euro exploses, you will get deutschmarks in lieu of escudos... Well, this is all true, but if Deutsch Bank goes under, those clients will lose everything.
And those clients probably ignore the fact that the #1 German bank has a 30-to-1 leverage ratio (30 euros of liabilities for 1 euro of cash) and that, worse, if we are to take into account what is off their balance sheet, it is the bank most exposed to derivatives in the world. These are considerable risks that could send this bank to the floor and making its home in Germany will not magically transform it into a safe institution.
The Swiss bank account argument, for the banks, looks too much like a three-card-monte. In order to find safety, one must choose banks with solid balance sheets, though quite rare, especially among the large ones. But the best thing to do is to get out entirely of the banking system or, in other words, migrate toward real assets such as physical gold, of course, but also in real estate, farmland, artwork... with the caveat of knowing these complex markets well. And a failing bank, even in Switzerland, is not worth much!
