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January 2005 (Editor’s Note: Sven Lorenz once again unveils an investment opportunity overlooked by banks and brokers, mostly because the country it resides in is too small to get much attention. The Principality of Liechtenstein - a tiny country locked in between Austria and Switzerland - has just 33,500 residents and ranks as one of the world’s smallest countries. But it’s also rich and has been ruled by the same aristocratic family for centuries, making it one of the world’s most politically stable nations. Read on to find out why now is the time to invest into one of Liechtenstein’s premier financial services companies). Not long ago, a popular saying in German-speaking Europe was, “In Switzerland, the bankers don’t talk. In Liechtenstein, they don’t have tongues.”  But all that’s changed. After reports by Interpol that traces of practically every white-collar crime committed in Europe led to Liechtenstein, the OECD’s Financial Action Task Force put this tiny country on its money laundering “blacklist” in 2000. Swift and painful changes followed. Declaring that “Liechtenstein faces the biggest domestic and foreign political crisis since World War II,” Liechtenstein’s ruling prince spearheaded sweeping financial reforms that gave the government much greater powers to investigate suspect financial transactions, confiscate laundered assets and cooperate with authorities in other countries in investigations of serious crimes.  While Liechtenstein retains a culture of privacy, and bank secrecy laws remain on the books, it now has the same know-your-customer rules in effect almost everywhere else in the world. However, Liechtenstein still does not cooperate in foreign tax investigations. Any foreign tax official inquiring about an account in Liechtenstein is politely shown the door. Lazy, Rich Banks Until the new laws took effect, it was possible to hire a lawyer to form a Liechtenstein company or trust and then operate a bank account for that entity without the bank ever knowing the identity of the owner. The lawyer was bound by law never to reveal his clients’ identity. It was the ultimate tool for anyone wanting true anonymity. Liechtenstein was the last place in Europe to offer such a service, and it attracted many billions of dollars as a result. With a near-monopoly for such dealings, Liechtenstein banks had an easy life. So easy that they even had the guts to charge customers a percentage for cash deposits…just think of a shop asking you for a percentage of what’s in your wallet before you are allowed to buy something! Life couldn’t have been more profitable.

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Meet The New Liechtenstein

Given this state of affairs, when the laws changed in 2000, a huge crisis resulted for Liechtenstein’s banks. Many trusts and companies wound up their anonymous accounts rather than identify their beneficiaries. Some banks lost as much as 20% of their clients. The influx of money slowed and, simultaneously, the dot-com boom ended, taking equity markets down with it and cutting deeply into the banks’ commissions and custody fees. It seemed that the world had conspired against Liechtenstein banks, with everything going wrong at once.

But in retrospect, the tough times did Liechtenstein a lot of good. The new laws forced the banks to stop being fat and lazy. They were forced to cut costs and fees to provide competitive services. They also learned a lesson about focusing on a single market - asset management - and how to market their services effectively. In short, Liechtenstein banks re-launched themselves as a safe and clean place for stashing away funds. And that’s a principal reason why you should take a closer look at Verwaltungs und Privatbank, also known as VP Bank or VPB. Link: http://www.vpbank.com. 

One of Liechtenstein’s three original banks, most of VPB’s voting shares are controlled by a trust set up by Liechtenstein’s ruling family, headed by Prince Alois. VPB offers the entire spectrum of banking services, but the focus lays on asset management and related services for wealthy clients.

Of Liechtenstein’s fat and lazy banks, VPB was one of the fattest and laziest. But financial realities forced it to change. Profits dropped more than 80% between 2000 and 2002, due to shady but profitable clients closing their accounts, falling stock markets and high costs. VPB’s share price got hit too, falling from its all-time high of CHF380 in 2000 to a low of CHF117 in 2003.

But during this time, VPB laid the groundwork for a fresh start, cutting costs and, for the first time, actively marketing its services. These changes are now bearing fruit. Profits for 2004 are expected at CHF95 million or CHF16.2 per share. The estimate for 2005 is CHF18.80. At a share price of CHF179, VPB trades at a low 9.1 price-to-earnings ratio and throws off nearly a 3% dividend to boot. 

VPB’s attraction is safety. A growing number of foreign investors are anxious to stash money in a safe haven where it will neither be taxed or confiscated. In other words, a place like Liechtenstein, where the public finances are so sound that personal income tax was abolished because there wasn’t anything to spend the money on. Individual freedom and privacy is sacrosanct, and there’s no history of government confiscation for legitimate funds. And security? Liechtenstein survived the Napoleonic wars, World Wars I and II and the Cold War without being invaded. Accounts in Liechtenstein are set to stand the test of time.
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