75-billion French francs sleep in Monaco's banks. At least the same amount again circulates in the form of shares, bonds and investment funds. With one teller for every 470 inhabitants, Monaco today has the highest bank/resident density in the world. The banking sector, with a turnover of seven billion francs per annum, has laughed-off the world economic crisis... but how long will it last?
In the banks of Monaco, the term "crisis" isn't part of their vocabulary. This is one profession where there are no complaints! It must be said that, virtually free of the risk attached to real estate or business credit, here, there's continual expansion. The ten years to date, in particular with the freeing of exchange controls in France in 1987, the number of financial establishments has doubled. Today there are 37 banks and 64 agencies. At the same time, deposits have been rocketing by 20 to 30% per annum: 20 billion francs in 1986, 53 billion in 1990... 75 billion in 1993: an amount equal to that of the entire French department of the Alpes Maritimes, for one 30th the population. To say that Monaco's banking sector is based on portfolio management and "private banking" is no scoop. We all know that Monaco attracts money particularly from those on "easy street". The average account here is 350,000 Francs, as opposed to 28,000 for example in the Alpes Maritimes area (figures: Banque de France July 1993)... Individuals, specifically the non-French, for fiscal reasons which go without saying, and leading the pack: the Italians. While the average person in the Alpes Maritimes area of France lives on credit (54 billion francs currently on loan), this is not the case in Monaco, with only 13-billion francs credit in the latest Bank of France report; a figure which is even lower this year than in 1993 (16 billion), no doubt due to the relatively morose economic situation.
On the other hand, buyers of portfolios in stocks and bonds are still on the upper: 26 billion francs in purchases and 18 billion in sales in 1994, an increase respectively of 20% and 40%. By the same token, investment funds have seen trading of 20-billion francs in 1994, a progression of 40%! Again, in comparison to the Alpes Maritimes (nevertheless one of the richest regions in France after Paris), the volume of trading is far higher in Monaco. There's an average here of six times more sales and 12 times more purchases in stocks and shares for example.
It's proof of the fact, with the figures doing the talking, that portfolio management appears to be more and more the speciality of Monaco. A good deal for the clients, and also for the banks. As agrees Georges Mazaud, CEO of Credit Foncier de Monaco and, for a short time now, president of the Association Monegasque des Banques (AMB), "These investments generate interest for the banks. The cost of computing is such that we need a major volume of transactions in order to make a profit!"
A sour note to the euphoria brought about by the figures: we've seen, since the end of 1994, a flattening-out in portfolio volume. After having made big gains on the Asian markets, a number of headstrong speculators have been suffering the consequences and are now paying the price...
It's no secret, a non-French person has nothing but advantages when opening an account in Monaco. Here, there's no tax on the interest gained on investments, nor on the capital. there's no stamp duty on transfers or trading of stocks or shares. This, as opposed to France, where the levy is from 19 to 43%!
Banking secrecy is a tradition here, even if there's no explicit law, as is the case in Switzerland (see details below). To this is added, for those living in the Principality, other well known advantages: no income tax, nor is there property tax or rates, nor estate duty...
The French come under French legislation, and are liable to checks by the French taxation and customs authorities on their accounts. However, a French person who lives in Monaco for more than five years will have the right to some privileges, or at least after his or her death. His or her accounts in Monegasque banks will be free of estate duty and will not be subject to wealth tax on stocks held in France. Finally, if he or she had the clever idea to create a civil real estate society, his or her properties in France. Always useful to remember.
Not long after his arrival at the head of the government, Paul Dijoud, the new Minister of State was quick to analyse the economic situation in Monaco. Noting that the two traditional "motors" of the economy- real estate and tourism are spinning their wheels, he's looking for "other avenues for the future" in the banking sector, which is able to specialise not only in portfolio management, but also in "technical sectors linked to international commerce"...
Dijoud was recently cited, "Monaco can still develop as a financial centre", putting in place new products such as fiduciary services and trusts, or instruments such as holdings and reassurance infrastructures.
After having launched his ideas, Paul Dijoud is now consulting the professionals in the field. As a response, the Association Monegasque de Banques has created a commission or "think tank" to come up with new ideas. Its president, Georges Mazaud, thinks that Monaco has some cards up its sleeve. "If you ask me, the Principality should model itself on Luxembourg, which, despite being a member of the EEC, has negotiated a situation alongside the other European states and has obtained advantages which have made it a sort of offshore centre. In following their example, it seems to me to be possible to create here a bond market whereby we could quote bonds in major organisations present in Monaco. Bonds... and certainly not shares, which would be technically impossible!"
All around, people talk about "Monaco, the financial centre", but to turn it into a financial centre worthy of it's title, what's missing is a maritime branch, the possibility to move into the creation of stocks, to create holdings for groups looking for tax efficiency, a statute for "Fiducies" (the French version of English trusts) ...in other words, to become more like an "offshore centre", such as Jersey, Panama or Hong Kong.
On this subject, Georges Mazaud is already mind-set: "If you ask me, Monaco will never be a real financial centre... it's unthinkable that we might one day have a stock exchange... but an original style banking centre, yes."
For the government, the ball is in the court of the professionals. it's up to them to say whether Monaco should be made into a veritable "offshore financial centre", or more modestly, a banking centre. Wait and see...
One of the traditional functions of banks is to participate in the financing of the economy. In Monaco, their main preoccupation is not that of financing local industry. Only the few big "generalist" banks, such as the Credit Agricole and the Societe Generale risk this ... and of course the Credit Foncier de Monaco, for which this is one of the major roles. But the majority, as we've reported, prefer to concentrate on portfolio management... the placement of capital deposited by a client in different financial products... these investments are made in other financial centres... In reality more than 70% in France!
Money re-injected into the "hexagon", which certainly doesn't refuse it. As Paul Dijoud underlined, "...the development of Monaco will be beneficial for France and the "PACA" (Provence-Alpes-Côte D'Azur) region in terms of employment and the creation of wealth."
In Monaco, banking secrecy can be lifted in three cases: If customs laws have been broken; If fiscal authorities are able to prove tax evasion or a crime committed in France; or if Interpol has proof of a criminal act. In other words, non-French who aren't being tracked by Interpol have the right to absolute banking secrecy!... As in Switzerland, albeit that numbered accounts don't exist here... But anonymity is just as much guaranteed, because the Principality, having no fiscal conventions or agreements with any other countries, it gives-over no information whatsoever. Contrary to France, where the banks furnish the fiscal authorities all information regarding the opening, the modification, or the closing of an personal account. On top of this, as one Monegasque banker recently highlighted, the Swiss recently saw their famous secrecy breached by the investigation by Italian judges in their so-called "clean hands" operation. Could Monaco be more secure than Switzerland? In fact, there is no particular law in Monaco concerning banking secrecy, moreso a "tradition of confidentiality". To this extent, the thoughts of Paul Dijoud are that this is not an essential point. Monaco should put more emphasis on the "charm of the setting, along with the performance of investments, and an image of extreme discretion, all kept in proportion."
It's in fact a delicate notion, that of banking secrecy! While it attracts people simply looking for tax efficiency, it can also attract "dirty money". A recent law (July 7th 1993) imposes upon banks an obligation to ask for information about the source of funds, and also an obligation to declare any doubts they might have concerning an account. The Principality had had its image slightly tarnished by public accusations of mafia infiltration. This is one of the major concerns of Mr. Dijoud. Banking secrecy, yes, but rules and regulations must be stuck to. The AMB, to this end, at Dijoud's request, will be creating a commission charged with working-out the best way to apply the rules...
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