UBS sees outflows from emerging-market clients as secrecy erodes

[ZURICH] UBS Group AG, the biggest wealth manager, sees more emerging-market outflows ahead as tax authorities step up scrutiny of wealthy clients.

Net withdrawals from emerging-market clients amounted to 2.3 billion Swiss francs (S$3.16 billion) in the second quarter - much of it from Latin America, UBS said Friday.

Outflows from the developing nations are picking up, just as an extended period of cross-border withdrawals within Europe is starting to taper off, chief financial officer Kirt Gardner said.

After the US and European countries conducted personal tax amnesties and hidden asset disclosure programs, countries such as Brazil and Mexico are making similar efforts to encourage wealthy people to pay back taxes or repatriate their offshore holdings.

The Swiss government will start collecting data from its banks next year to share annually with other tax authorities taking part in the global automatic exchange of information regime. The first exchanges will be in 2018.

"We do expect those outflows to continue for the rest of the year and into next year, really in advance of the full implementation of automatic exchange of information, and naturally also as the emerging market countries implement their own amnesty programs," Mr Gardner said on a conference call Friday.

UBS paid US$780 million in 2009 to avoid prosecution for helping Americans evade taxes, and has since been pushing its clients to declare their assets and make use of amnesty programs.

"My fear is that this is moving to Asia now," said Chirantan Barua, an analyst at Sanford C Bernstein.

"We already have regularisation schemes happening in countries like Indonesia, which is resulting in lots of private banking outflows in Singapore." Both UBS and Credit Suisse Group AG, its largest Swiss competitor, have said they plan to expand wealth-management operations in the Asia-Pacific region as more residents get rich.

EFG International AG, a Zurich-based private bank, said on Wednesday that difficult market conditions in Latin America prompted an outflow of client money in the first half of the year.

Boris Collardi, chief executive officer of Julius Baer Group Ltd, expects programs in the Latin American region to last another three to four years, he said at an earnings presentation.

BLOOMBERG