Geneva is home to one of the world’s largest private wealth industries and preferred tax-efficient base for hundreds of European finance and trading firms. In this Swiss lake-side city even a croissant can set you back a small fortune. Finding somewhere to shop that is not a luxury outlet selling watches or designer-ware, meanwhile, can be a real struggle.
The city is also home to nuclear research facility CERN and its Large Hadron Collider, which some fear could one day create a black hole. Ironically, though, it is a black hole of a different variety that appears to have hit the city a little sooner – the Madoff wealth vaporisation sort.
Bloomberg reports Geneva has been hit particularly hard on account of the scandal, with at least eight Geneva-based firms having placed money with him. And while many of the investments were made through so-called fund of funds, the Madoff list showed Thursday that Geneva was the base for many of the listed parties.
And just like a blackhole, the impact is now quickly extending to other Geneva-based industries – from fancy eateries and luxury shops to ski resorts, all of which appear to be reeling from the disappearance of millions from the city. As Bloomberg reports:
The waitlist at Geneva’s Michelin two-star restaurant Domaine de Chateauvieux evaporated after Bernard Madoff’s Dec. 11 arrest, along with about 10 billion Swiss francs ($8.5 billion) the city’s banks and funds had invested with him. Bankers canceled six-month-old reservations for holiday parties of a dozen or more, said restaurant manager Esteban Valle. Sales of 5,900-franc aluminum-titanium Zai Spada skis have slumped, and a decline in landings by private jetliners at Geneva International Airport accelerated last month.
Executives from watchmakers such as Cartier and Vacheron Constantin, both brands of Cie. Financiere Richemont SA, used to eat at Domaine de Chateauvieux’s 500-year-old farmhouse four times a month, Valle said. Now it’s maybe once. Geneva-based Richemont, the world’s largest jewelry maker, said on Jan. 19 that it’s facing the toughest market conditions since its formation 20 years ago.
At Geneva airport, meanwhile, takeoffs and landings of chartered private jetliners reportedly fell 26 per cent to 1,602 last month, while for privately owned aircraft, movements slumped 25 per cent to 1,370 in January, after a 9 per cent drop in December and a 7 per cent decline in November.
But there’s more to Geneva than just its position as home to the über-rich and their millions. For one, it accounts for a significant slice of Switzerland’s exports as a leader both in the biotech and luxury-watchmaking industry. It is also, according to the Geneva chamber of commerce and industry, responsible for 17 per cent of world shipping trade as well as the world’s number one provider of petroleum financing . Note the graphs below:
Accordingly, a major Geneva slowdown could hurt Switzerland considerably. Already, the KOF research institute has said it expects the Swiss economy to contract significantly in the first half of 2009, its last estimate being a contraction of 0.5 per cent.
This could, however, easily worsen if the Swiss franc maintains its recent strength. In the last six months the currency has appreciated by 9 per cent to the euro, something that no doubt contributed to December’s steep decline in foreign Swiss sales – the sharpest in 11 years.
It is this sort of economic context (banking losses aside) that has led the Swiss National Bank to consider the previously unthinkable. On Thursday, SNB vice chairman Philip Hilderbrand made it quite clear quantitative easing was among the only options. As we quote (our emphasis):
“The national bank has acted decisively and massively to fight the symptoms of the crisis and to counter the impact of the contraction of the economy, which is coming now. We have partly moved into new territory. If necessary, we will not hesitate in this sense to take further innovative and far-reaching monetary policy measures.”
“We have the option to intervene directly in the market. Should the inflation forecast deteriorate in the direction of deflation, then we have further and aggressive means to act according to our mandate.”Dennis Gartman of the Gartman Letter points out “innovative” and “far reaching” are archly non-Swiss attributes. He adds the urgent feel of the comments themselves are likely to have contributed to the Swiss franc’s weakness vs the euro throughout Friday, as can be seen below.
Related links:
Madoff cold shower makes Geneva bankers forgo two-star meals – Bloomberg
162 Madoff client-list made public – FT