The End of Swiss Banking Secrecy ?
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The Swiss government proposed bill to allow banks to share clients data with the U.S. received a setback with the parliamentary committee rejection of the draft.
Today's vote by the upper house will probably decide the future of Swiss banking secrecy. Both bankers and Cantonal financial directors are supporting the agreement as a rejection could lead to criminal indictments for some Swiss banks with obviously a very bad impact to business.

With very limited information available it is however clear that one of the historical competitive advantages of Swiss banks is going to be impacted. The main issue is if the acceptance of some unilateral conditions will set an important precedence that might lead to the end of Swiss banking secrecy.

In my view several Swiss major banks have already adapted their business model by leveraging their competitiveness on security and stability and by refocusing on high growth area like Asia but with a very fierce competition the loss of secrecy might have a negative impact to business.

A recent drop on several Swiss banks might still be a buying opportunity, especially for these banks that have already successfully changed their business model.

European Austerity doesn't work
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Disappointing PMI data from Germany confirms that the European slowdown continues and not just in southern Europe.
Austerity combined with limited access to credit by SME will only result in prolonged no-growth and higher unemployment. The continuous jobs reduction from European businesses (now at the 16th consecutive month) will likely push the 12% unemployment rate higher.

Central to the problem is also the financing disparity of European SMEs (that accounts for 98% of euro-zone companies
and 75% of employment). On a five year loan German and French SME will pay 3.5% vs. 6% in Spain or Italy (GS data). This cannot be easily solved by the ECB.

Europe needs a set of pro-growth policy that will ensure that cheap money is not just available to banks but is properly transmitted to SME. Austerity will not simply kill growth and make many of the European countries uncompetitive.

Gold will rise again
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I view the recent drop in Gold as a buying opportunity especially for these portfolios that have little or no gold component. Physical gold sales (e.g. Golden Eagle coins sales surged eight fold vs. the same month last year) are seeing increased demand while "paper gold" in the form of futures and new investment vehicles like ETFs created an higher level of volatility. It is now much more easier to react and sell gold in the case of rumours, founded or otherwise, that a central bank is around to sell a large amount of Gold in the market.

Gold will reach, in time, new highs but investors should be prepared to higher volatility. Further drops will likely be followed by new physical demand both by investors and central banks.

European Equities: Opportunities
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Despite the various issues that Europe has European equities remain relatively cheap. Given that only 46% of the revenue of the companies in the MSCI Europe is actually linked to Europe investors can still benefit from global companies based in Europe that present attractive valuations. For instance, given the recent improvement of the political situation in Italy, the Italian market might present some interesting opportunities. This is particularly true for global "made in Italy" brands like luxury makers. (e.g. Prada, Ferragamo, Cuccinelli).

In Short
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- The European slowdown will continue as Austerity will only fuel a no-growth, high unemployment environment. Pro-growth measures are needed quickly.
- Gold will rise again and the current lower pricing is a good buying opportunity especially for physical gold.
- Despite the no-growth environment European equities are still attractive

Switzerland says Ja and limits "fat cat" salaries
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see also the CNBC article by Carolin Roth here

With close to 68% of the votes and a winning result in each of the 26 Cantons, Switzerland has voted yes to the referendum to give executives pay binding decision rights to shareholders. The new rules will be part of the the Swiss constitution and will allow shareholders to vote, even electronically, annually on management compensation with veto powers.

It also bans the payment of sign-in and exit bonuses, m&a bonuses and consulting contracts.

The vote highlights the Swiss strong will to enhance transparency and give more power to shareholders. The recent issue with the former Novartis CEO exit package has further underlined the gap between shareholders and population understanding of a fair and competitive compensation to what was seen as an exaggerate exit bonus.

Swiss Competitiveness not in danger
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The main concern for these that lobbied for the referendum proposal to be rejected was that the competitiveness of Switzerland as a place to do business will be impacted, as many multinational companies might opt for other locations where the executives compensation doesn't have to be decided by shareholders.

I think that this will not be the case and Switzerland will continue to be highly competitive for several reasons. First the WEF competitiveness survey, topped by Switzerland in the last few years, does not consider executive pay as a criteria. Secondly for executives Switzerland remains a highly competitive place to work due to the low taxation (30% on average vs. 48% of Germany and 45% of England) and very high quality of life.

Additionally the fact that shareholders have now the right to vote on executives pay doesn't necessary mean that they will not approve competitive salaries. It will however enhance transparency and avoid further situation where a top manager, regardless of the effective performance, will receive lavish sign-in and sign-out bonuses.

Transparency in a post-financial crisis economy
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The 2008 financial crisis has left a mark in Switzerland too. The overall perception of the population is that top managers come and go leaving too often the problems behind them. Regardless of several instances of poor performance their paycheck remained unaffected and this is not acceptable. It also tries to end a short term top management mentality by banning sign-in and exit bonuses.

The recent EU decision to cap banking bonuses to one year's base salary is another signal that this reform might be adopted by other European countries too (Denmark and the Netherlands already have a binding shareholder vote on executives compensation).

In Short
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- Swiss Vote on giving executive compensation voting powers to shareholders passed with a large margin potentially opening a new era in corporate transparency;
- Swiss Competitiveness should be largely unaffected by the change as the criteria that make Switzerland one of the most competitive remain.
- The 2008 crisis underlined the failure of a "hands-off" approach is among the reasons for the need of more transparency and shareholders power;
- Other European countries might implement similar rules, particularly in the banking sector, but will be much slower in doing so.

Too optimist about Europe ?
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European markets and the Euro had a very bullish start of 2013. With 28% of the ECB loans been repaid at the first opportunity, investor confidence on European banks is continuing too. With such a strong start of the year and a very good 2012 a question comes to mind:
Is this a case of over-optimism about Europe?

I think that several factors can fuel volatility in 2013:
- Political changes with elections in several countries (Italy,Germany)
- Low / No Growth environment
- Little or no improvement in consumer spending
- Weak Economy and higher unemployment

In the context of the above challenges the markets might have been too optimistic in the short term with possible corrections or higher volatility to be expected.

This said I don't think that we will have a similar risk on/risk off mood as previous years. With yields at record low levels and a lot of monetary interventions some of the optimism in the stock market might well be justified.

European Banks Rebound
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LTRO repayments of 28% (137 billion) were higher than the expected 87-100 billion and came as a sign of strength from the European banking sector. I think that while European banks remain at interesting valuations the sector will face several challenges like getting sure that bad loans do not increase and to find a way to grow in a low/no growth environment. As the sector remains highly fragmented my preference would remain for these banks with a good competitive advantage and solid capital positions.

Opportunities
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I maintain that European equities are still highly interesting and I would take a possible market corrections as a buying / accumulation opportunity. I also think that Gold remains an important hedge especially as central banks (e.g. Russia and Kazakhstan) remain net buyers. Money stimulus (essentially printing) measures will continue and in this environment owning gold is a good strategic hedge toward paper money devaluation.

In Short
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- European optimism largely justified but, while I remain positive for 2013, corrections or higher volatility might occur;
- European banks LTRO repayment is a positive signal for the highly fragmented sector. Opportunities remain but I would favour banks with solid capital positions and a clear business model;
- Gold: I am positive for 2013 until the stimulus continues and several central banks remain net buyers of the metal;

A New Year, a New Europe
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The ECB decision to keep interest rate unchanged underlines the great improvement in the Eurozone both in terms of Government and banks financing.

With good results from the Spanish auction and the Italian financing costs at the lowest in 3 years we now see confidence getting back to Europe. This will make 2013 a year of slow but firm European recovery.

Given the overall financing improvement the announced OMT, that was certainly very important to reach this point, will probably not even need to be deployed. This is pretty much what investor wants: to know that the ECB will be ready to intervene if needed and ensure a lower fragmentation among the various European Economies.

Financing for banks (e.g. through the recent issues Intesa and Banco Bilbao) has also considerably improved.

Throughout 2012 I maintain a positive outlook for Europe and I can only reaffirm this for 2013.

European Challenges
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Despite the great financial improvements several challengers remains: while Draghi pointed out that full employment is not within the ECB mandates the high unemployment in some European economies (especially youth unemployment) remains a big challenge for some European economies. We have also not yet seen a full improvement in lending which limits the potential of new investments, job creation and consequentially growth.

What European Governments needs to do is implement a set of measures to reduce unemployment and boast growth: a real challenge if combined with austerity !

Opportunities
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With interest rates at record lows and an increase of money supply equities remain among the most interesting asset classes for 2013. In terms of regional focus European companies with exposure and growth in emerging or higher growth markets remain attractive.

I would still recommend some allocation to Gold as a hedge toward the increasing money supply.

In Short
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- Europe will have a slow but firm improvement in 2013
- Lending conditions should improve and support the European recovery
- European-based companies with exposure to higher growth economies are still a good investment opportunity for 2013
- Gold remains interesting as an hedge but volatility is to be expected