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14,700 Americans disclose offshore accounts; how will Swiss markets react?
IRS v UBS
At the April 2009 meeting of the G-20 in London, the member nations declared:
...we agree to take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over.
Strong claim. But as EWI analyst Brian Whitmer noted in the May 2009 European Financial Forecast:
The crackdown has an air of tenderness ... by all accounts, the latest G-20 meeting produced little more than a series of multi-colored lists, including the "shortest blacklist of all time," which contains "exactly zero entries."
The tax issue has resurfaced since then, particularly between the US and the Swiss financial behemoth, UBS AG. In June the FBI and IRS began inquiries into multi-million dollar tax-evasion schemes by US citizens. Several fraud conspiracy arrests followed (of UBS bankers and clients alike), and UBS itself had to pay a $780 million fine to the US Government.
The whole story came to a head yesterday, when the IRS declared that over 14,700 Americans had voluntarily disclosed account data for overseas bank accounts. Back in March the IRS made an offer to offshore account-holders, to wit: Cough up payment of back taxes and avoid jail time. And as of yesterday's deadline, it looks like US citizens decided that keeping a numbered account in a private bank is scarier than paying taxes. As IRS Commissioner Doug Schulman put it, "It has sent a shock wave around the world ... we are serious about piercing the veil of bank secrecy."
Sounds like doom for the Swiss Market Index (SMI), right? Switzerland's economy is highly dependent on financial services, and an estimated one-third of all offshore accounts are held there. If bank secrecy really is done for, the SIX Swiss Exchange should be in tatters.
Nope. The SMI has dipped here and there, but it's been in modest recovery since the March lows. If the veil of financial privacy has been pierced ... and if Swiss Banking is synonymous with financial privacy ... then where does this upward movement come from?
Put simply, the big move higher came from the same place as the even bigger move lower that preceded it: Trends in investor psychology that have nothing to do with "news."
Is this a new bull market, or a last-gasp rally in anticipation of a big drop to come? If this one turns, it's going to be brutal. The European Financial Forecast keeps you up to date on the signs that forecast the turns. Subscribe now and keep your investments safe.