Barclays Pulls Out Of US-Swiss Program On Client Accounts

Tom Burroughes

31 July 2014

Following rumors heard by this publication that it was considering the move, Barclays announced yesterday that two of its entities have pulled out of the US-Swiss program concerning undeclared US account holders.

WealthBriefing, sister publication to Family Wealth Report, understands that the bank believes it has no undeclared client money in the Alpine state.

"Barclays Bank SA and Barclays Bank PLC Geneva Branch were participating in the Program; however, following a structured review of their US related accounts, it was determined that continued participation in the Program was not warranted. As a result, Barclays Bank SA and Barclays Bank PLC Geneva Branch have withdrawn from the Program,” the bank said in its statement today.

The Swiss and US governments agreed in August last year on a program through which banks with Swiss operations could state whether they were sure, or were unsure, of holding such undeclared money. It is estimated that a third or more of Switzerland’s roster of over 300 banks have entered the program, administered by the US Department of Justice. It is designed to resolve a long-running dispute about tax evasion between the countries.

Switzerland’s two largest banks and its oldest private bank are among the firms that the US has punished with heavy fines for aiding US tax evaders.

Last August, the Swiss government said the US program is open to all Swiss banks, excluding those banks which are the target of criminal investigations by the Department of Justice . Banks in category 2 - which have good reasons to believe that they have violated US tax law - may request a non-prosecution agreement from the US authorities up to December, 31, 2013 at the latest. They must then supply the US authorities with information on their cross-border relations, particularly leaver lists, but not the names of clients, the government said.

Institutions in category 2 must also pay a fine, the amount of which will be in relation to the volume of untaxed US assets they hold and the date on which the accounts were opened. The fines amount to 20 per cent for accounts which existed on August 1, 2008, and 30 per cent for accounts opened between August 1, 2008, and 28 February, 2009. If a bank opened an account with untaxed US assets after February 28, 2009, the fine will be 50 per cent. The statement added that banks which believe that they have not violated US tax law and those whose business is local in nature can report to the US authorities between July 1, 2014, and October 31, 2014, at the latest to request a non-target letter.

Barclays' Q2 results

The newly-formed Personal & Corporate Banking arm of UK-listed Barclays, which now includes its old wealth arm, said its total first-half 2014 income rose 1.0 per cent year-on-year to £4.361 billion .

Earlier this year, the bank folded the old wealth and investment management business into the PCB business arm.

Net interest income at PCB rose 7 per cent year-on-year to £3.057 billion.

Pre-tax profit rose 23 per cent to £1.468 billion. The cost/income ratio of the division was 61 per cent, down from 69 per cent at the end of December last year.

“The wealth and investment management business has made great progress on its transformation journey and its contribution to PCB’s half year results reinforces the positive impact the strategy is having on its profitability and sustainability. The underlying business remains robust and well positioned for the future and it continues to secure significant new clients in target markets around the world,” Ashok Vaswani, head of Personal and Corporate Banking, said.

A view through the bank’s results statement did not yield a figure for assets under management held by clients in the old wealth and investment arm.

“Barclays Wealth and Investment Management has made strong progress in delivering the strategy announced last year to reposition the business. This has included simplifying the operating model and improving the control environment. We are already seeing the impact of these changes in the financial results with an improvement in the cost profile of the business driving strong PBT growth,” a spokesperson told this publication when asked about any figures. The bank said no AuM figure could be provided.

In the previous results for the first quarter of 2014, the Barclays Wealth and Investment Management arm reported total client assets at the end of March at £198.3 billion, down £3 billion from the end of last year. Barclays said its wealth and investment arm logged a 22 per cent rise in pre-tax profit when costs of its Transform program are taken out.

The decision to create the PCB division – ending the wealth arm’s status as a stand-alone division – has caused controversy. It is understood that Peter Horrell, who was head of wealth and investment management and who is leaving Barclays at the end of this year, was prompted to step down.

For the banking group as a whole, adjusted pre-tax profit fell 7 per cent to £3.349 billion, largely as a result, it said, of currency movements and a cut in the profits of the investment banking business; this was partly offset by the PCB results, and those of Barclaycard and its non-core area.