BLOOMBERG - Luxury Watch Maker's Hit Hard!

[Whiskey]

I found this article while I was playing with the Bloomberg machine we have at work (I work as a financial accountant). It was on their news-wire. I found it on their website and posted it here. It's a long article, so I've bold-faced the important stuff. You guys wanted to get an idea of how the luxury watch market is doing with respect to the economy. Well here's an unbiased report of the luxury-watch industry. If your AD says different, they're lying to you. Enjoy!


BLOOMBERG NEWS

Feb. 6 (Bloomberg) -- The waitlist at Geneva’s Michelin two-star restaurant Domaine de Chateauvieux evaporated after Bernard Madoff’s Dec. 11 arrest, along with about 10 billion Swiss francs ($8.5 billion) the city’s banks and funds had invested with him.

Bankers canceled six-month-old reservations for holiday parties of a dozen or more, said restaurant manager Esteban Valle. Sales of 5,900-franc aluminum-titanium Zai Spada skis have slumped, and a decline in landings by private jetliners at Geneva International Airport accelerated last month.

“Madoff has been like a cold shower for Swiss wealth managers,” said Sebastian Dovey, managing partner at private bank and wealth consultant Scorpio Partnership Ltd. in London.

Madoff’s alleged fraud hit Geneva particularly hard, after at least eight firms placed money with him. Many of their investments were made through so-called funds of funds, pioneered by the city’s bankers to pool client money and invest in multiple hedge funds run by outside managers.

Nestled between the Alps and Jura mountains at the tip of western Europe’s largest lake, Geneva has 140 private banks and 600 independent asset managers. The financial industry employs 34,400 people in a city of fewer than 200,000 and accounts for 58 percent of local professional taxes.

Fees Questioned

Union Bancaire Privee, one of Europe’s largest hedge-fund investors, has said it is likely to write down $700 million of investments with Madoff. Notz, Stucki & Cie. estimated losses at $737 million. Banque Benedict Hentsch & Cie., with 56 million francs at risk, terminated its merger with Fairfield Greenwich Group, a New York firm that invested $7.5 billion with Madoff.

UBP spokesman Jerome Koechlin and Christophe Lamps, an outside spokesman for Banque Benedict Hentsch, declined to comment for this story. Notz Stucki didn’t return calls.

Madoff’s alleged $50 billion Ponzi scheme highlighted a deficiency of risk management and transparency at some funds of funds, throwing into question the fees they charge, said Drago Indjic, project manager at the London Business School’s Hedge Fund Centre. Firms that aren’t adding value will disappear, he said.

“This is going to be a glitch on the computer screens of London and New York, because we’re not reliant on the funds of funds business,” Indjic said. “Geneva is.”

There are 1.6 trillion Swiss francs under management in Geneva, according to Steve Bernard, managing director of Geneva Financial Center, a foundation promoting the city. Bernard estimates the amount of Geneva-managed money invested with Madoff at 0.6 percent, or about 10 billion francs.

The city has 10 percent of worldwide private assets held outside investors’ home countries, the center estimates.

‘Not Buying’

The fallout from Madoff is hurting a city already grappling with the credit crisis and resulting recession in Europe, the U.S. and Japan. That’s dashed Geneva bankers’ willingness to spend money on luxury goods, said Christian Dunand, director of Hofstetter Sports SA, which has a shop downtown.

Spending on Dunand’s most expensive skis, including the Zai Spada with a peek-a-boo window providing a glimpse of the ski’s granite core, has dropped by more than 25 percent. He’s heard from other store owners that the trend is the same for luxury watches.

“The client who can buy the 50,000 Swiss-franc watch and 6,000-franc skis has been the most hurt,” Dunand said. “Those are the people who have been hit by the stock market plunge and by Madoff, so they’re not buying this year.”

Stressed and Worried

Executives from watchmakers such as Cartier and Vacheron Constantin, both brands of Cie. Financiere Richemont SA, used to eat at Domaine de Chateauvieux’s 500-year-old farmhouse four times a month, Valle said. Now it’s maybe once.

Geneva-based Richemont, the world’s largest jewelry maker, said on Jan. 19 that it’s facing the toughest market conditions since its formation 20 years ago.

At Les Bains des Paquis, a public spa halfway out a jetty over Lake Geneva, bankers’ complaints about the rising pressure spiked on Dec. 12, the day after Madoff’s arrest.

“A lot of them came in and said right away they were very stressed with all that happened,” said Lucia Gomez, who has worked there for 17 years. “People are still talking about how much they are worried.”

Geneva was a refuge for Protestants fleeing religious persecution before becoming a haven for moneyed exiles in the late 18th century. The 16th-century theologian John Calvin helped turn the city into the “Protestant Rome” and, important for its development as a banking center, overturned the Catholic Church’s condemnation of usury.

‘Greedy Clients’

The finance industry was founded by wealth managers such as Pictet & Cie. and Lombard Odier Darier Hentsch & Cie. after the French Revolution. Notz Stucki partners Beat Notz and Christian Stucki began investing in hedge funds in the 1960s.

In 1969, Georges Coulon Karlweis, a retired director at Banque Privee Edmond de Rothschild, created one of the first fund of funds in Geneva with Leveraged Capital Holdings NV. The same year Edgar de Picciotto founded what became UBP.

“Good fund managers can multiply your investment by 10 and the bad ones can only lose the amount you give them,” said Karlweis, 81. “There have always been crooks and clients of crooks who were often greedy. The people selling Bernie Madoff had great address books, but they didn’t know anything about finance.”

Madoff-related losses may undermine confidence in Geneva’s private banks, said Jerome Lussan, managing director of London- and Geneva-based Laven Partners, a hedge-fund consulting firm.

“The shock comes from the fact that people have always linked Geneva and its banking system to something conservative that protects assets,” Lussan said. “That so many are caught up in Madoff related investments causes a certain unease.”

75,000-Franc Timepiece

The banks aren’t alone in feeling the pinch. At Geneva’s international luxury watch fair in January, it took Baume & Mercier almost a week to sell 10 limited edition, 75,000 Swiss- franc Tourbillon timepieces, which use the rotating-wheel mechanism invented in the 18th century to improve accuracy.

Last year Baume & Mercier got 37 orders for a similar series, Chief Executive Officer Michel Nieto said Jan. 22. “Most attendees are more reserved,” he said. Baume & Mercier is also a Richemont brand.

At Geneva International Airport, takeoffs and landings of chartered private jetliners fell 26 percent to 1,602 last month, said spokeswoman Aline Yazgi. For privately owned aircraft, movements slumped 25 percent to 1,370 in January, after a 9 percent drop in December and a 7 percent decline in November.

Discounted Champagne

Even the best snow in a decade hasn’t kept some gloom from being felt in the local ski industry.

In Verbier, a resort about 130 kilometers (80 miles) east of Geneva and a popular weekend destination, everyone is talking about the Madoff scandal, according to Daniel Guinnard, director of a local real-estate company.

He has been trying to sell a four-bedroom, 12 million-franc chalet for about a year. “The property market here is dead,” he said.

Verbier’s Coco Club has cut the price of house champagne and vodka to 250 Swiss francs a bottle from 300 to 350 francs.

“People are more cautious than last year,” said Hayley Menzies, the club’s head of marketing. “We’re trying to be sympathetic to the current climate.”

The club still offers a 10,000-franc cocktail for six people made with a magnum of Krug grande cuvee champagne and served in a hand-carved, hollowed-out ice chalet, by waitresses called Snow Birds. “People come here to escape,” General Manager Martyn Moloney said.

Domaine de Chateauvieux’s chef and owner, Philippe Chevrier, said Russian tourists are helping him weather the financial crisis. He didn’t lose any money with Madoff.

“I reinvest everything I earn in my business,” said Chevrier, 48, dressed in sauce-splattered kitchen whites after cooking lunches that included Jerusalem artichoke emulsion and squid stuffed with king crab. “That’s how you become successful long term.”