Can Dubai become the Switzerland of the GCC? (page 1 of 2)

Didier Duret is a lucky man. Not only because he is a top manager at a wealthy private bank in Switzerland. The CIO of ABN Amro Private Banking in Geneva was in Asia when Iceland's volcano eruption blocked nearly all European airports.

"We just travelled from Indonesia to Dubai, when we heard about the cancellation of flights back home", Duret told AMEinfo.com in Dubai. Asia is a key focus for the group. "South East Asia's growth will outperform nearly all other regions in 2010.We recommend our clients stocks in Indonesia and Malaysia so that their portfolios will outperform," Duret said.

ABN AMRO Private Banking is part of the ABN AMRO businesses acquired by the Dutch state in 2008. As one of the major international players, ABN AMRO Private Banking continues to operate in 12 countries across Europe, Asia and the Middle East, managing $120bn of assets worldwide.

Swiss account disclosures

Alongside Zurich, Geneva is the main private banking hub in Switzerland. "Wealthy Arabs favour Geneva banks because they like the discretion and the political stability of the country", Duret explains.

Switzerland's biggest bank UBS, however, once the second largest asset manager in the world, lost more than its entire equity capital during the financial crisis and could only be saved by the government, which bought a 9% stake shortly after Lehman's fall in 2008 and sold it in August 2009 for six million Swiss Francs. The Swiss central bank pumped 68 billion Swiss Francs into the bank (marketing slogan: "you and us"). At the same time, UBS was forced to disclose the names of 4,450 US citizens who used the Alpine country as a loophole to evade tax payments at home, after the US IRS sued the government in Bern. UBS also had to pay $780m. All these events shed a doubtful light on the "world's safe".

According to Duret, Arab High Net Worth Individuals are using Swiss banks in order to diversify their assets. "While they expect superior returns at home, in Geneva they invest into rather secure accounts such as bond market funds with a low-risk profile."

Clients from European Union states such as Germany, France or Italy are taking advantage of Dubai as a tax-free financial hub, as Switzerland remains under immense pressure from nearly all sides. Germany aims to end the flight of capital from wealthy people who hide money in Zurich from German tax authorities, as do France and Italy. Badly hit by the financial crisis, the EU does not want to tolerate tax-evasion in front of their doorsteps and sharpened the control of capital flows abroad by checking bank accounts at home and searching for cash in cars crossing the German-Swiss border.

Back to basics

New private banking hubs are mushrooming in the East, with tax-free and low-tax hubs Dubai and Singapore respectively being at the forefront of the growth. Duret is convinced that growth opportunities exist in all asset classes, but investing into stocks and equity funds is regarded as a taboo in the wake of the global crisis. "High net worth individuals (HNWI) still primarily invest in gold and money market funds", explains Hassan El-Nahas, the Head of Private Banking at ABN Amro Private Banking Middle East in Dubai's DIFC.

A HNWI is defined as a private person whose assets (bank account, investment funds, real estate, art, patents ...) exceeds $1m. In the DIFC, only HNWI can open accounts as DFSA-regulated banks are not allowed to compete with retail banks licensed by the UAE Central Bank.