Swiss bankers are on the defensive with their secretive industry under sustained attack for sheltering tax dodgers. Some cannot travel abroad for fear of arrest in tax investigations.
But the fur coats and expensive cars on display around the Paradeplatz square at the heart of Zurich's financial district - as well as booming house prices - tell a different story: business is good in a city now ranked the world's costliest.
Zurich overtook Tokyo as most expensive according to a new ranking by the Economist Intelligence Unit because of the soaring Swiss franc. The currency is up 30% since 2008, despite a cap imposed last year by the central bank, because investors view it as a safe haven in global economic turmoil.
The same factors make the country's banks attractive despite the gradual erosion of bank secrecy: political stability and neutrality, low government debt and an economy which has been relatively resilient through the financial crisis.
Although Swiss banks - especially the country's biggest UBS - have shared in the pain of the crisis, they have retained an image for solidity, particularly in contrast to their euro zone rivals, bolstered by new capital rules that are the world's strictest.
The swelling ranks of Chinese and Indian millionaires who have developed a taste for Swiss luxury watches are also drawn by the country's quality-seal when it comes to banking their new wealth, helping to replace US and European tax exile clients.
Figures published in recent weeks show that six of the biggest Swiss banks together pulled in net new client assets of more than 100 billion Swiss francs in 2011.
"Switzerland PLC remains a hugely popular global epicentre of wealth. Clearly in the global environment of the last 12-24 months people have been looking for safekeeping," said Sebastian Dovey of wealth management consultancy Scorpio Partnership.
"Net new assets might reflect a positive mood from 12 months ago. Will we see a similar strength in 12 months time? I suggest we probably will," Dovey added.
While Singapore and London are also doing well, Dovey noted Switzerland has defended its position as the biggest centre of offshore wealth. It remains the top choice for investors in Asia even if Singapore might overtake it in a decade.
"Island of the blessed"
Asia is a particular strength of UBS which drew net client inflows of 42 billion francs in 2011 despite the blow of a $2 billion trading scandal in September just as it was starting to restore trust after a 2008 state bailout.
"Many observers still see Switzerland as a kind of island of the blessed in an environment plagued by crisis," UBS chairman Kaspar Villiger told a dinner in February to launch a year of celebrations for the bank's 150th anniversary.
"The question is whether such a situation is sustainable given the worrying number of difficult challenges our country is confronted with."
Most critical of those challenges at the moment is settling a long-running tax dispute with the United States, which is investigating 11 banks including Credit Suisse and Julius Baer for helping Americans evade taxes.
The sense of urgency has increased since Switzerland's oldest bank, Wegelin, broke itself up in January a week before it was indicted on charges that it helped Americans evade taxes on at least $1.2 billion hidden in offshore bank accounts.
"In Switzerland, you would believe that was like the end of the world but if you interview wealth clients around the world ... the disappearance of Wegelin is a side story," Dovey said.
"However the wider issue of the industry needing only in future to handle compliant assets is going to have major ramifications both in Switzerland and elsewhere."
Banks are likely to have to pay hefty fines and hand over thousands of client names to end the US investigations, but the issue should not have a big impact on assets as most already closed the accounts of US offshore clients after UBS paid $780 million to settle criminal charges in 2009.
A survey by the Boston Consulting Group (BCG) shows that assets of North American origin shrank to 2% of the total $2.1 trillion of offshore wealth held in Switzerland at the end of 2010 from 18% just four years earlier.
That helps explain the fall in offshore assets managed in Switzerland from a 2007 peak of 2.7 trillion francs, but the country has managed to compensate by attracting clients among the new wealthy in booming emerging markets like Latin America and the Middle East and Africa.
Shift to new world from old world
"Even under new circumstances and after a certain drain of assets, Switzerland has a lot to offer. For the medium-term I'm very confident, even for money from the 'old world'," said Zurich-based BCG partner Peter Damisch.
"Emerging markets will get more and more important. We see a tectonic shift," he said. "Five years ago, two thirds of assets were from the 'old world' and one third from the 'new world'. Five years down the road it will be exactly the opposite."
Swiss banks remain exposed in western Europe, which accounts for about half its banks' offshore assets under management - or $1 trillion - and where Switzerland has also come under intense pressure from its neighbours to make sure accounts are taxed.
Switzerland struck deals with Germany and Britain last year to allow citizens to pay tax on accounts without revealing their identities which it hoped would be blueprints for other cash-strapped countries in Europe, including Greece and Italy.
But the agreements have faced resistance from the European Commission, which wants Switzerland to accept an automatic exchange of bank information, and from the German opposition Social Democrats which sees them as too lenient on tax evaders.
That has led some senior bankers to voice what would have been unthinkable a few years ago: that Switzerland should stop fighting to defend what remains of bank secrecy.
"If the Americans get thousands of client data, the Europeans will want that too," said Pierin Vincenz, chief executive of Switzerland's third biggest bank Raiffeisen.
"We must finally show that Switzerland is serious with a 'clean money' strategy. And that will in the end only be possible with an internationally supported strategy."
That idea still strikes fear into the hearts of many Swiss bankers after decades of easy profits that came from managing untaxed assets, making them "fat but impotent" in the words of Hans Baer, the late former chairman of Julius Baer.
Jobs at risk
Daniel Lampart, chief economist of the Swiss Trade Union Federation, said pushing banks to manage only taxed funds would shave 0.2-0.3% off annual gross domestic product in the next few years and put 5,000 to 10,000 jobs at risk. But he said it was in Switzerland's interests to clean up its banking industry: "There's no reasonable explanation for a country to give an easy way out to people with taxes to pay at the expense of other countries."
Swiss conservatives are more worried. Thomas Matter, banker turned politician from the right-wing Swiss People's Party (SVP), has warned that accepting only "clean money" could cost the banking industry 50,000 jobs. The financial industry accounts for about 6% of jobs in Switzerland - over 200,000 - and contributes more than 10% to national output, accounting for a third of growth in last 20 years.
However, while Zurich's Bahnhofstrasse shopping street might not sell as many Rolexes in future, the Swiss economy could live with fewer bankers, given that unemployment is just 3%.
The experience of private bank Sarasin, which has taken a pro-active stance on shedding untaxed assets in recent years, should also provide some consolation for the industry.
It is predicting 8-10% growth in net new assets in 2012. And despite a change of ownership which deterred customers in the second half of 2011, Sarasin still managed to attract net new assets of 1.5 billion francs for the year, many of them from clients in Asia and the Middle East.
Oswald Gruebel, former chief executive of both Credit Suisse and UBS, is sanguine about the future. "We still have a lot of indisputable advantages compared to other countries and also a good image with investors despite the incidents of recent years," he said in a recent speech. "In 10 years we will experience another economic boom."
