Pension clients monitoring situation after J. Safra Sarasin Deputy CEO quits amid legal problems

Eric Sarasin’s resignation came as wealthy clients sue bank

(Updates with comment from J. Safra Sarasin.)
Following the resignation last Friday (October 31) of Eric Sarasin as Deputy CEO of J. Safra Sarasin over the Swiss bank’s legal troubles, one of its long-time institutional clients has stepped forward to acknowledge that it is “closely monitoring” events at the bank.

The client is the CHF1.2bn (€1bn) Swiss pension fund Abendrot, which was founded in 1985 as a dedicated sustainable investor. On behalf of Abendrot, J. Safra Sarasin ensures the sustainability of the scheme’s stock and bond investments via an exclusion screen. Those investments account for 75% of Abendrot’s assets.

“As one of its clients, we are closely monitoring events at Bank J. Safra Sarasin. As of now, though, nothing further has been discussed or decided,” Abendrot CEO
Hans-Ulrich Stauffer told Responsible Investor from Basel.

Swiss consultants PPC-Metrics and Complementa, meanwhile, say the resignation of the member of the group’s founding family has no direct impact on the bank’s fund business, as its managers invest according to guidelines laid out in fund prospectuses.

Having pioneered the strategy in the 1990s, the bank offers institutional clients sustainable investing solutions. It was acquired by the Lebanese/Brazilian banking family Safra in 2013, at which time it managed around CHF15bn sustainably for Swiss and German institutions.

Another €17.6bn is managed by Sarasin & Partners, a London affiliate that lists church investors, foundations and pension funds as its clients.

Yet since its beginnings, Sarasin also has been a private bank, specialising in investments for wealthy clients. And it is this business that has caused the bank’s current legal woes. Eric Sarasin had been on the group’s Executive Committee since January 2004 and is a former Honorary Treasurer of World Wildlife Fund International.

The legal problems stem from complicated so-called “cum/ex” deals offered to around 50 wealthy clients, including the German multi-millionaires Erwin Müller and Carsten Maschmeyer, who invested €300m in such deals.

Now, partly because German tax authorities stopped paying out dividend tax refunds after discovering the scheme, and, upset over their losses, Müller and Maschmeyer, as well as several others like Portuguese billionaire Americo Amorim, have sued the bank for tens of millions of euros in damages.Maschmeyer has also filed a legal complaint against Eric Sarasin himself, alleging that he personally misled him about the deals. Both the bank and Sarasin vehemently deny wrongdoing, and Sarasin said last Friday he was resigning to clear his name and protect the bank from any further damage to its reputation. He has since also stepped down as President of the Swiss-German Chamber of Commerce.

In the week before Eric Sarasin’s resignation, Swiss authorities, acting on a request from their German counterparts, searched his home as well as the bank’s premises in Basel looking for evidence on what went wrong with the “cum/ex” deals.

Banking sources in Zurich said J. Safra Sarasin’s reputation as a private bank would likely suffer more than its sustainable asset management one. “There have been two major blows to its private banking business. The first is that several wealthy and prominent clients have gone public about their losses,” said the sources, who spoke on the condition of anonymity. “The second is that for the first time ever in Switzerland, the public prosecutor, acting on instructions from Germany, has searched the premises of a bank and a prominent banker.”

The bank told RI: “Bank J. Safra Sarasin confirms that a premises search was conducted on October 23 at the offices in Zürich and Basel, based on a request for legal assistance by the German Authorities.

“The background to these inquiries are cum/ex transactions which are the subject matter of the investigations by the Cologne and Frankfurt public prosecutor’s office.

“This is a legacy issue from the time the Bank was owned by Rabobank. Bank J. Safra Sarasin was and is not involved in the set up or the processing of such cum/ex transactions, as the Funds under investigation were established and operated by a third party, not by the Bank.

“The Bank fully cooperates with these investigations which Swiss Authorities perform on behalf of the Cologne and Frankfurt public prosecutor’s office.”