More than $3 billion in investments and $8.6 billion in assets under management are at stake in the latest stalemate over repayment to compensation for Holocaust victims and their survivors.
Pension funds in four states are considering sanctions against Swiss companies, banks, and Swiss-based or Swiss-owned money management firms. Responding to the breakdown in negotiations between Swiss banks and representatives of Holocaust survivors and heirs, some funds are considering barring new investments in Swiss banks, terminating Swiss money managers, barring investment managers from doing trades through Swiss firms and, ultimately, divesting all Swiss stock.
The Department of State is discouraging the funds from taking such action.
James Rubin, State Department spokesman, said, "We continue to believe that sanctions are unwarranted and counterproductive. They may lead to less, rather than more, flexibility on the part of Swiss institutions. They will prevent our nation from speaking with one voice on matters of foreign policy.
"They may call into question the openness of American financial markets, and we're calling on state and local governments considering punitive measures to refrain from taking actions which can further heighten tensions and delay further progress on a settlement that can do justice to the victims of the Holocaust."
New York City Comptroller Alan G. Hevesi and New York State Comptroller H. Carl McCall are leading the effort to propose sanctions. They are members of the Executive Monitoring Committee, a group of finance officers formed to monitor progress of the negotiations between Swiss banks and Holocaust victims and to make recommendations to other state and local officers regarding Swiss sanctions.
California State Treasurer Matt Fong and Pennsylvania State Treasurer Barbara Hafer -- also on the monitoring committee and trustees of their state pension funds -- are threatening action against the Swiss.
NEW YORK CITY'S PLAN
Mr. Hevesi unveiled his city's detailed action against Swiss companies earlier this month.
If a settlement has not been reached by Sept. 1, the city will bar overnight investments with Swiss banks, bar Swiss banks from new letter of credit arrangements and ban Swiss investment firms and banks from underwriting or supporting new variable-rate debt transactions.
By Nov. 15, if an agreement has not been reached, the city would recommend the New York City Retirement Systems exclude Swiss investment managers from searches and ban trades from going through Swiss firms.
By Jan. 1, 1999, Mr. Hevesi would recommend the pension systems terminate contracts with Swiss money managers and by July 1, 1999, he would ask the $83 billion systems to consider divesting all holdings in Swiss stock.
The New York City Retirement Systems has $735 million in the stocks of Swiss companies, including $137 million in Swiss bank stocks.
"This program of actions is a last resort forced upon us by the continuing failure of the Swiss government to participate in the negotiations or even support an agreement, and by the inability of the Swiss banks to bridge the small gap between them and the class-action plaintiffs," he said. "We will be taking, and we urge others to take, prudent, responsible actions."
In addition to the holdings of Swiss stock, the New York City fund uses two Swiss-affiliated firms. BEA Associates, New York, manages $1.6 billion in international fixed income and $469 million in domestic enhanced yield bond portfolios; its parent is Credit Suisse Asset Management. Scudder Kemper Investments manages $866.3 million in international equities; its parent is Zurich Group.
Jeremy Condie, director of marketing communications at BEA Associates said, "We are looking for a rapid resolution to the situation and thanking our clients for their patience."
NEW YORK STATE
Mr. McCall now is recommending the $105 billion New York State Common Retirement Fund, Albany, take the same actions. He is sole trustee of the state fund.
Credit Suisse Asset Management manages a $740 million international equity portfolio for the state fund.
Information on the size of the fund's Swiss company holdings was unavailable at press time.
New York State Common also has used Credit Suisse to provide $27,000 in lines of sales credit this year and $430 million in a securities lending agreement. Swiss Bank Corp. also has provided $426 million in securities lending services.
"These are thoughtful and cautious actions designed to both send a strong message to the Swiss and encourage the parties to resume negotiations in good faith," Mr. McCall said.
THREAT IN CALIFORNIA
In California, Mr. Fong is calling for a boycott of Swiss banks until they return to the bargaining table and "negotiate in good faith."
Mr. Fong is a trustee for the California Public Employees' Retirement System and the California State Teachers' Retirement System, both in Sacramento. It has yet to be seen if the pension funds will follow his lead. No legislation has been proposed calling for a boycott.
Patrick Mitchell, chief investment officer of the teachers' fund, said he provided Swiss bank holding information to trustees and is waiting for legislation before commenting further. The $88 billion fund holds a total of $246 million in the stock of six Swiss banks; uses Brinson Partners Inc., whose parent is Union Bank of Switzerland, to run an $800 million global equity portfolio; and has a total of $1.4 billion invested in Switzerland.
The CalPERS board has not yet taken a position, a spokesman said. The $140 billion fund has $395.9 million invested in Switzerland, including $193.8 million in Swiss bank shares. Julius Baer Investment Management Inc., whose parent is based in Switzerland, manages $1.2 billion in international fixed income for CalPERS; BEA Associates, a subsidiary of Credit Suisse Asset Management, is a currency overlay manager handling about $1.9 billion for the fund.
Ms. Hafer in Pennsylvania announced the first week of July sanctions that will be imposed in the next 60 days.
Ms. Hafer said she is prepared to stop the state treasury from buying long- or short-term debt from Swiss banks and their U.S. affiliates, and cease purchasing and trading Swiss bonds, securities and money market instruments, effective Sept. 1.
She also will recommend the Harrisburg-based state pension boards of the public school employees, state employees and municipal employees retirement systems do no new business with -- or purchase stocks in -- Swiss banks or their U.S. affiliates.
The state employee and public school employee funds have $700 million combined in Swiss equities, including $200 million in Swiss financial stock, according to the treasurer's office.
The $910 million Pennsylvania Municipal Employees' Retirement System has no Swiss-affiliated investments or money managers.
The $23 billion Pennsylvania State Employes' Retirement System, has $34.7 million in Swiss stocks. In addition, BEA Associates manages $672 million in international stock, and Pictet International Management Ltd., a subsidiary of Pictet et cie, a Geneva based bank, runs $333 million in international equities for the fund.
Officials at the $41 billion Pennsylvania Public School Employees' Retirement System were unavailable for comment.
Ms. Hafer also plans to discuss sanctions with finance officers in the 2,500 municipalities in the state, especially Philadelphia, Pittsburgh and Harrisburg.
NEW JERSEY SANCTION
In New Jersey, Gov. Christine Todd Whitman has ordered a sanction against Swiss companies calling for the New Jersey Division of Investment, Trenton, not to invest any additional assets in Swiss-owned companies.
The $75 billion New Jersey division has $400 million invested in the stock of eight Swiss companies, including one bank. It manages all assets internally.
While it does not plan on divesting its UBS stock, it won't purchase more shares, in accordance with the sanction, said New Jersey State Rep. Neil M. Cohen.
In Switzerland, a spokesman for UBS said "no other financial plan, institution, or corporate organization" has addressed the issue in more detail. "We feel such actions as sanctions are unwarranted and counterproductive."
UBS has offered 530 million Swiss francs ($809.3 million) to settle the negotiations and has agreed to pay any additional amount that results from the findings of the commission tracing the dormant accounts of 90 banks.