US tax fight sees closure of second Swiss bank

Frey & Co has become the second private Swiss bank to close shop because of the ongoing US campaign against wealthy Americans suspected of using the European country’s famously secretive banking system to skirt domestic tax laws.

Founded in 2000, Frey is among a group of 14 banks that are barred from participating in a recent deal between US and Swiss authorities that provides local lenders in the European country with a way of making settlements with American prosecutors by disclosing details of their dealings with American citizens. The agreement, struck earlier this year, did not cover banks that, like Frey, were already under criminal investigation by the US.

Although it has not been indicted nor is it under the threat of an indictment, Frey said it would cease its banking activities because of the “increasingly difficult market conditions, ever-growing regulations and the unsustainable requirements that smaller private banks are required to comply with, in part as a result of the tax dispute with the US”. However, the bank’s assets would not be liquidated, it said in a statement.

The cessation of banking activities at Frey comes after the closure of Wegelin & Co, the country’s oldest private bank, which was forced to shut down earlier this year following an indictment in a tax evasion case. Wegelin pleaded guilty to charges of conspiracy to help Americans avoid paying more than a billion dollars in taxes for almost a decade. It also had to cough up nearly $60m (£37m) in fines.

Frey & Co’s chairman, Markus Frey, said it “no longer makes sense for a small bank to continue its cross-border services”.

Separately, in the US yesterday, Morgan Stanley cheered investors on Wall Street with a strong third quarter report, unveiling a jump of around 50 per cent in net revenues to $7.9bn thanks to activity in equity trading. Like its peers, the bank’s fixed income, currency and commodities arm was hampered by challenging market conditions during the three months to September, with revenues easing by over 40 per cent. But its equity sales and trading revenues provided a bright spot, rising to $1.7bn from $1.3bn over the quarter.