Photo: swiss-image.ch/Stephan Engler Geneva’s role as an international hub for raw materials trading dates back to the 1950s. Just as credit for Geneva’s position as a financial centre is due to the revocation of the Edict of Nantes in 1685 and made the city the hub of French Protestant banking in the 1700s, the Egyptian Revolution in 1952 along with Nasser’s ascent to power led to a mass emigration of cosmopolitan communities from Alexandria and Cairo. Among the dozens of Sephardic families who immigrated to Geneva, several were specialised in cotton trading and contributed to making the city an important centre in this sector. In 1995, an estimated 10% of the world’s cotton trade was handled in Geneva. U.S. cereal, cotton and other soft commodities trader Cargill’s arrival in 1956 can likewise be seen as a contributing factor. Cargill currently has a staff of 600 in Geneva and is still the canton’s leading employer in a sector that has long been conspicuous for its lack of transparency. According to the Geneva Trade & Shipping Association (GTSA, founded 2006) trading in primary materials and activities linked to the sector account for 8,000–9,000 jobs in some 400 companies. Although some large banks active in trade finance and a few multinationals are among the GTSA’s founding members, most of the companies engaged in trading commodities in Geneva do everything possible to not draw unwanted attention. “The Russians were primarily in London, but now some have come to Geneva for privacy reasons”, revealed Celal Bayar, Executive Director of Baycorp SA. Baycorp is one of a dozen companies specialised in trading crude oil and petroleum products, an activity that has taken over cotton’s former role as Geneva’s principal trading sector. A third of the world’s freely traded oil is now handled in Geneva, but that might not have been the case under different circumstances. Without the Left Wing’s victory in the 1981 French presidential elections and the rise to power of Franзois Mitterrand – who was then supported by the Communist Party – French banking giant Paribas might not have “awakened” its Pargesa company. Pargesa had been listed on the Swiss stock market, to make it a holding company which allowed the Swiss subsidiary to achieve autonomy from Paris. After acquiring an unprecedented operational importance, Paribas (Switzerland) gave new drive to Geneva’s activities in the petroleum trade finance sector. The 1980s likewise correspond with an extraordinary amount of competition in this sector, as former Paribas staffers were soon hired by other Geneva-based banks to develop rival activities in trade finance. Companies from other nations quickly came to Geneva, attracted by the sector’s rapid growth. They discreetly began to do business in various sectors including trade finance, as was the case with Kofisa – then a subsidiary of Turkey’s Koç group – in 1982.
But it was really Elf Aquitaine’s arrival on the Geneva marketplace in the late 1980s that gave the trade finance sector its second wind. Elf Aquitaine’s Geneva subsidiary has been part of the Total group since 2000. If Paris instigated the initial rise of Geneva’s petroleum trade activities, it is no exaggeration to state that Moscow is the impetus behind the new importance of commodities activity in Geneva. The fall of the Berlin Wall in 1989 opened the way for the arrival of the Russian oil market’s principal players, starting with Lukoil. Privatised in 1993, the Russian oil giant founded its Litasco subsidiary in Switzerland as a marketing and supply company exclusively for the Lukoil group. In May, 2000, Litasco opened its own Moscow offices to manage logistics for exports to third party nations. Current estimates indicate that 75% of Russia’s petroleum export contracts are settled in Switzerland, as Litasco is no longer the only Russian company in Geneva's petroleum trade financing market. Since Gunvor International Limited opened its Geneva branch in April, 2004, it has become a major player among companies active in commercialising petroleum products. In 2007, Gunvor traded an estimated volume of 1 million barrels per day, which would make it Russia’s largest crude oil trader. Earlier this year state-owned Rosneft also registered trading operations in Geneva. It would appear that excessive discretion continues to be the rule in Geneva’s oil trading sector, although the situation has slightly evolved over the past few years. For example, Litasco is a member of the Joint Chamber of Commerce which links most of the CEI countries along with Russia.
In terms of commodities, Russia’s market share remains significant and the arrival of principal players commercialising Russian oil in Geneva attracted companies from other CEI nations. For example, Socar came to Geneva in September, 2008 to facilitate commercialising Azerbaijan’s energy resources. A year later, a new permanent mission which opened in Versoix confirmed Geneva’s importance to the Caucasus region’s nations. One of the main reasons for these trading companies’ presence in Geneva is linked to the existence of a highly developed banking system, including establishments like BNP Paribas, which remains the oil trading market leader. A market which, due to the astronomical sums involved (a single cargo can mobilise between USD 50 to 100 million), can only be handled by banks with considerable capital. It is furthermore among banks active in trade finance that one finds the few establishments that prefer branch status. This allows them to use their corporate capital when the corporations in question are headquartered abroad rather than choosing subsidiary status, which is favoured by wealth management banks. Is this perhaps why Russian banks are far less present than Russian oil conglomerates? Yet Russian banks have also demonstrated a strong interest in Geneva. Unexim, the first to register under the much envied status of “foreign bank in Switzerland”, has been sincerely supported by Geneva’s financial community since it arrived. Although Rosbank – which employed some 20 staff in Geneva – has since been taken over by Sociйtй Gйnйrale, the Russian presence in Geneva still retains its importance with the impending arrival of Gazprom Bank, created in Zurich in November, 2010. As far as the Russian wealth management clientele is concerned, it is increasingly sought after by some of the most exclusive establishments, including Wegelin & Cie. The Geneva branch of this prestigious St. Gallen private bank is precisely geared towards this new market.
This wealthy Russian clientele is all the more promising in light of the enormous fiscal pressure numerous wealth management banks are subjected to by the EU and the subsequent repercussions on their traditional French and Italian clientele. These considerations are not far from the problematic issues in trade finance, as everything is linked. Lump sum taxation is one of the principal elements driving the surge in the commodities sector over the past 10 years. In other words, the arrival of large fortunes tends to precede that of trading companies. Another fiscal advantage is the favourable tax rates “intermediary companies” enjoy in Geneva, Zug and Zurich cantons. Guy Mettan, who is both former President of Geneva’s parliament and President of the Swiss- Russia Chamber of Commerce noted, “Geneva enjoys fiscal and geopolitical advantages, as it is in neutral territory.” For his part, Celal Bayar cites a deterioration of conditions offered in London, where fiscal pressure is strongly felt – particularly by those who benefit from lump sum taxation limited to no more than 5 years. But the pressure in Great Britain as well as elsewhere in the EU is also being felt in Switzerland. Brussels would like to see its own ideas on intermediary company taxation enacted in Bern, which would constitute a certain menace to Geneva’s role in the trading market, although the city has certainly wriggled out of other tight spots…
