Shares in Swiss banks dived on Friday amid concern the country's once strict privacy rules are being weakened by a U.S. tax probe into UBS, potentially damaging the country's wealth management industry.
Swiss wealth management giant UBS was leading the fall in Swiss bank shares. It was down 17 percent at 5:07 a.m. EST after hitting a fresh all-time low at 10.60 Swiss francs.
Shares in bank rivals Credit Suisse and Julius Baer, both large players in the private banking industry that has thrived thanks to Swiss bank secrecy, were both down around 10 percent.
Swiss banks were underperforming a fall in the DJ Stoxx index of European banks, which was down 5.6 percent.
Crisis-hit UBS settled late on Wednesday U.S. criminal charges that it had helped rich Americans to dodge taxes. But U.S. tax authorities said on Thursday they were still pursuing a civil lawsuit seeking to access the data of 52,000 American clients of UBS in what is known as a John Doe summons.
The John Doe summons ... is better characterized as part of the ongoing debate around, and attack on, offshore private banking, analyst Matt Spick at Deutsche Bank said in a note.
As such it is negative for sentiment, but in our view across Swiss banks rather than UBS specifically.
UBS agreed on Wednesday to pay a fine of $780 million and to disclose about 250 names of U.S. clients it said had committed tax fraud.
But U.S. tax authorities now wants thousands more names of citizens it says are hiding about $14.8 billion in assets in secret bank accounts.
Swiss media described the UBS settlement as a capitulation for Switzerland, and experts said they expected it to weaken the country's bank secrecy rules.
A cartoon in Swiss newspaper Tages Anzeiger showed a safe symbolizing bank secrecy being pierced by a bullet carrying the name of the U.S. Department of Justice.
A second cartoon showed a huge rocket, labeled the U.S. tax authorities, coming at full speed while UBS Chairman Peter Kurer was quoted as saying that the bank was no longer a target.
All of the Swiss banks are off. This is has to do with concerns about Swiss banking secrecy and whether other jurisdictions may follow the United States' example, said a London-based bank analyst.
Lawyers say the U.S. investigation will have implications for other offshore centers, which are also coming under pressure from cash-strapped western governments as the economic crisis deepens.
Germany, which suspects thousands of its citizens are hiding money away in offshore accounts, has criticized Switzerland for its bank secrecy laws and paid an informant to obtain names of clients of LGT bank of Liechtenstein, another well-known bank secrecy stronghold.
Prosecutors in Germany are investigating Prince Max of Liechtenstein, who is also LGT's CEO, for possible tax evasion, the Financial Times Deutschland reported on Friday.
LGT said in a statement that Prince Max, who lives in Munich and is the second son of current ruler Hans Adam II, had complied with Germany tax rules and was cooperating with authorities in the investigation.
(Editing by Will Waterman and Hans Peters)