Hugh Wheelan looks at the settlement
Swiss banks, asset managers and corporations are breathing a collective sigh of relief, following the announcement that the deadlock in discussions between Jewish groups and Swiss banks, which had come frighteningly close to dragging them into the dispute as sanctions targets, has been resolved.
The boycott, scheduled to kick in on September 1 and backed by a number of US state pension funds, in particular the city of New York, and heavily supported by US Senator Alfonse D'Amato, chairman of the Senate banking committee, had threatened to cause untold damage to Swiss investment.
The menace followed months of bitter wrangling about compensation to be paid to holocaust victims and their heirs, for gold looted by the Nazi' in thw Second World War and placed in Swiss bank accounts.
Lawyers representing Jewish groups had initially rejected a 'rough justice' payment of $600m by the Swiss banks, describing it as 'derisory', and subsequently the boycott pressure was applied in a bid to force the Swiss hand.
The series of 'escalating' sanctions first bite was to have been the barring of any new cash investment or credit arrangements with Swiss banks, and a ban on Swiss investment firms from underwriting any variable rate debt transactions.
By November 15, the heat was set to be turned up with the exclusion of Swiss portfolios from new investment management searches, and a ban on trading through Swiss firms.
And by January 1, sanctions were set to bite harder still, banning all Swiss investment firm contracts and threatening pension fund divestment from Swiss firms by July.
Walter Von Wartburg, head of global communications at Novartis, the Swiss-based global life sciences group, says the company is extremely relieved the sanctions danger has been snubbed, although he is still expressing slight caution over the deal.
Novartis has around a third of its business and a large research branch in the US, so obviously we were taking the boycott threat extremely seriously. We are very pleased this affair has now been resolved, but we will only be truly relieved when we see the agreement is operational," he says.
Francois Perraud, chief spokesperson at Swiss multinational Nestlé, which has around 30% of its capital held by US investors, is similarly pleased at the settlement: "This was clearly a threat, although Nestlé was pessimistic as to the real effect of such sanctions, as we don't think our US investors would have heeded any boycott appeal. But we are very pleased the Jewish groups and banks have settled."
The final settlement package of $1.25bn will be paid in five installments of $250m by the main Swiss banks targeted in the legal action, UBS Brinson and Credit Suisse First Boston. The first payment is to be handed over 90 days after approval of the deal has been granted by a US court, expected to be within the next two months.
This compensation is inclusive of any findings of the Volcker committee, appointed to assess the amount of Jewish assets currently lying in dormant Swiss bank accounts.
The Swiss banks have admitted the looming danger of sanctions played a large part in sending them back to the negotiating table.
Robert Vogler, spokesperson at UBS Brinson said: "Clearly the boycott threat was an important factor in the renewed offer, but we also felt that not settling this issue now could have led to years of bitter dispute, which would not have been beneficial to either side. We are satisfied a fair conclusion has now been reached and this affair can be put in the past."
And the announcement last month by Zurich Insurance of the launch of a newspaper advertising campaign in the US to locate holocaust survivors and heirs who may be the beneficiaries of its life insurance policies, indicates a sea change in the Swiss approach to this emotive issue.
The advert, which appeared in publications including The Los Angeles Times, The Washington Post and Jewish Week, was, according to Rolf Hüppi, chairman and CEO of Zurich: "Our corporate responsibility to reach out to the Jewish community in this fashion in order to increase the opportunity for anyone who believes they may be the beneficiary of a Zurich policy to come forward."
It could be a particularly timely announcement, with the issue of Swiss insurance company policies and money deposited by holocaust victims, currently being called into question in the US."