A shift in mentality is needed
Ernst Wilhelm Contzen didn’t beat about the bush when presenting the first half-year results before provisions of the banking industry, which are down 12% compared to the same period in 2011. The Chairman of the Luxembourg Bankers’ Association ABBL said that the crisis was far from over and that banks are widely affected. Though the situation does not look too bright, he didn’t want to be too pessimistic either.
Ernst Wilhelm Contzen spoke about a mentality shift that has to take place, not only in the finance industry but also across the whole society. Everyone needs to be aware of the fact that the golden years are over. The trend goes towards net revenues increasingly under pressure and costs rising, but profitability and productivity not rising at the same pace.
According to Mr Contzen this is a trend we have to get used to. ”Volatility in the results of the financial sector will remain for the foreseeable future. The golden years are over, that means the era before the end of Lehman Brothers. I think that the years to come will affect the banking industry much more than the first two years after the Lehman crash in 2008”.
This trend does, of course, affect the income of the government with tax revenues generated by the finance industry going down, revenues that will be less predictable than in the past. That’s why the chairman of the ABBL Mr Contzen demanded a salary freeze for the next few years, not only in the banking industry, but also through all sectors, including civil servants.
At the same time, he criticised political decision makers who promised to save money, but have not gone through with their promises.“In this matter, Luxembourg is in accordance with most of the other European countries, which do not act when it comes to putting austerity measures into practice either”, he added with a touch of irony.
No doomsday prophecy
Mr Contzen also pointed out the silver lining in this challenging period of time. “I am cautiously optimistic because the results of the Luxembourg fund industry are very good, with assets under management by Luxembourg-domiciled funds having reached a historic level of nearly EUR 2,500 billion under management. I underline that the administration and distribution of funds are based in Luxembourg, while the management is in most cases not in Luxembourg but in Paris, Zurich, Geneva or Milan.”
He is also quite upbeat about the future of Luxembourg-based family offices, which will further develop because the country’s legal framework and planning security remain attractive to foreign clients and investors. “Investors that are entrepreneurially minded have enough risk to bear in their own business, that is why it is important for them know that their wealth is being managed in a stable environment”. Another key factor in that context is Luxembourg’s network of double tax treaties with other countries – 64 signed plus 18 more under negotiation.
Avoiding capital flight
Another topic raised was “Rubik”, which refers to the bilateral tax agreements Switzerland has signed with the UK, Germany and Austria. The aim of Rubik can be summarized as follows: taxpayers will be allowed to continue to deposit assets anonymously and legally in a Swiss bank account and will be taxed according to the legislation of their country of residence.
This way, the Swiss banking secrecy will be preserved and thus Switzerland will remain competitive in international markets. Finally, the treasury of the country of residence will receive important tax revenues.
“‘Rubik’ will be a solution for Luxembourg as well once this agreement is signed between Switzerland and Germany. There are two reasons for this. The first is that Luxembourg is in favour of a withholding tax, because every country will get the amount of tax it is due, and the second is that Luxembourg is against an automatic exchange of information. Why? If a customer pays the tax he is required, he still needs a degree of privacy”.
He concluded that the automatic exchange of information is discriminatory against cross-border activities because in many countries there is no such exchange. “If a German or a French client opens an account in his country, there is no automatic exchange of information”, Mr Contzen stressed.
The ABBL asks for a level playing field in the debate around banking secrecy and the automatic exchange of information because a non-EU country like Switzerland should not be more privileged than a member State of the European Union when doing business with EU countries. CW