HomeJewels → The world's rich, worried about the recession and the weather, are keeping their money in safes

The world's rich, worried about the recession and the weather, are keeping their money in safes

  1. Bloomberg

A few blocks from London's Grosvenor Square, 46 Park Lane resembles a private club, with wood-paneled walls and an ornate fireplace dating back to Victorian Britain. But down a flight of stairs, it's one of the safest rooms in town. Built by IBV International Vaults, the steel-walled fortress will open next month and cater to billionaires looking for a place to stash their most prized possessions. "We get calls every week about an available room for $3.2 million a year," says Sean Hoey, managing director of IBV London, referring to an apartment-sized space. The firm, which also has 550 safe deposit boxes on site and room for around 450 more, is banking on London's reputation as a "safe haven" even amid Brexit.

This will be IBV's sixth location, and it's not the only firm trying to meet demand from the wealthy. From London to Switzerland to parts of the US, the wealthy are looking to store precious metals, cash and cryptocurrencies. For some, it is the threat of a global recession. Others avoid bank deposits, as negative interest rates force lenders to charge for holding cash. Many are worried about natural disasters.

Hedge fund titan Ray Dalio captured the anxiety last month when he warned that the global economy is under threat from an explosive combination of ineffective monetary policy, a widening wealth gap and climate change. According to a survey of UBS Global Wealth Management clients, most wealthy investors are hoarding cash in anticipation of a sharp market decline before the end of next year.

"We've seen extraordinary demand for safe deposit boxes since we started offering them in 2015, and that demand has really increased since late summer," said Ludwig Karl, a spokesman for Swiss Gold Safe Ltd., which operates high-security vaults. "Most people say they are planning for difficult economic circumstances."

It's a similar story for Sincona Trading AG, a precious metals dealer with more than 1,000 safe deposit boxes for rent in central Zurich. It had dozens of empty boxes three years ago, but now it is renting about five a day, says Benoit Schoeni, managing director. "There has been extreme demand," he said. "It won't be long until we're full."

Safes can range from a few inches tall to the size of a kitchen cabinet. Another option is free ports: warehouses in duty-free zones, such as Singapore, Geneva and Delaware, preferred for storing art, but which generally limit the amount of time pieces can be kept.

By some estimates, there are more than 25 million safe deposit boxes in the US alone. They can be used for the mundane or the exotic. A private collector kept the Crown of the Andes, made with 5.3 pounds of gold and more than 400 emeralds, in a Citibank box before its sale four years ago to the Metropolitan Museum of Art. Still, for many banks, they are no longer a core offering.

The amount of space they require is a deterrent. That's especially the case in London, home to the world's largest population of wealthy individuals, according to real estate brokerage Knight Frank. Few places in the city center have secure storage facilities the size of IBV on Park Lane, where customers can also buy gold coins from around the world.

Safe deposit boxes or online storage?

In the United States, safe deposit boxes have also fallen out of favor as banks close branches and choose not to install them in new ones. Demand has fallen in recent years, according to JPMorgan Chase & Co. and Bank of America Corp., the nation's two largest lenders. "Much of the decline can be attributed to customers choosing to store documents online, especially younger customers," Bank of America spokesman Don Vecchiarello said.

But interest has revived, as fears of weather disasters and wildfires have prompted more people to insure their valuables, says Jerry Pluard, founder of Safe Deposit Box Insurance Coverage. Boxes are also an option for cannabis companies, excluded from the US banking system because marijuana remains illegal at the federal level, he says.

Some Swiss companies also see demand driven by central bank policy. Negative interest rates have left Swiss banks caught between losing money to retain customer deposits and imposing fees that could drive them away.

UBS Group AG, the world's largest wealth manager, and rival Credit Suisse Group AG announced plans this year to expand measures to charge wealthy clients for holding excess cash. For some, these additional costs have made the safe deposit box a viable alternative. A spokeswoman for Swiss bank UBS, which operates nearly 250,000 safe deposit boxes across the country, says customer demand has fallen in recent years.

"The cost of storing cash is cheaper than negative interest rates," says Swiss Gold Safe's Karl. The firm offers six box sizes, with the largest renting 4,039 Swiss francs ($4,079) a year. "Cash storage has become a strong business for us."

Some bankers think that the desire for safe deposit boxes doesn't make much sense. To avoid charges on their accounts, the wealthy can spread their cash over multiple banks. Customers also need to purchase insurance in case something happens to the money, like a fire. Safe deposit box companies sometimes subsidize that extra cost; IBV London offers 100,000 pounds of complementary insurance for each container contracted.

The proliferation of non-banks providing safe deposit boxes has led some Swiss lawmakers to question whether they are providing a haven for bad deeds such as money laundering, noting that they do not face the same level of scrutiny and regulatory oversight as banks. traditional.

Storing large sums of cash in safe deposit boxes requires a to-do list. Some of them are arranging for the transportation of the money and keeping detailed records of its location to avoid raising suspicions of money laundering if the cash ever returns to a bank account. In addition, strict non-compliance with a secure deposit company's protocols can result in denial as a customer.

"The even bigger problem is getting the cash back into your account," says Felix Brill, chief investment officer at Liechtenstein-based VP Bank, which manages some $50 billion in assets and offers some safe deposit boxes. Still, "no one likes paying negative interest rates. Everyone is looking for alternatives."

Safes aren't always fail-safe

In 2015, thieves breached the wall of an underground vault in London's Hatton Garden diamond district and made off with $20 million worth of jewellery. A year earlier, a customer at a Wells Fargo & Co. branch in Highland Park, New Jersey, lost millions of dollars worth of rare watches that had been stored in a safe deposit box, the New York Times reported in July.

Ironically, heists and scandals may boost other companies offering safe deposit boxes as the wealthy hunt for even safer places to hide their prized possessions.

Christopher Barrow, chief executive of London-based Metropolitan Safe Deposits, said his company spent more than $3 million to build a facility that opened this year in southwest London. "Hatton Garden was a classic case," says Barrow, whose firm has more than 15,000 safe deposit boxes in central London alone. "In the background there were quality failures."

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