Speaking in Swiss-German, Hummler announced the bank had sold most of its assets to another Swiss bank. According to a person familiar with the matter, Hummler called it a last-ditch effort to preserve employees' jobs amid withdrawals of assets by investors who were increasingly worried about a growing problem: a U.S. federal investigation into Wegelin's sale of tax-evasion services to wealthy Americans. The dark-suited bankers and conservatively dressed office clerks, said the person, were in shock and tears.

The news for Wegelin, its headquarters nestled in the town of St. Gallen next to the Appenzell Alps near the German-Austrian borders, would only get worse. Six days later the U.S. Justice Department, acting on plans it had been making for weeks, indicted the 270-year-old bank on charges of enabling wealthy Americans to evade taxes on at least $1.2 billion from 2002 through last year. U.S. criminal laws apply to foreign banks that do business in the United States, even if the banks, like Wegelin, have no U.S. branches. The charges made Wegelin the first overseas bank in history to be indicted by U.S. authorities and marked a milestone in a burgeoning American crackdown on Swiss bank secrecy and efforts to force banks to turn over client names. The sale and the subsequent indictment effectively brought an end to the storied bank.

The Wegelin indictment also turned a spotlight on Hummler, an outspoken defender of the Alpine tradition of bank secrecy and an admirer of the Portuguese philosopher Fernando Pessoa's concept of the banker as an anarchist. In an interview three years ago with Suddeutsche Zeitung, Germany's largest newspaper, Hummler called the concept "a charming mind game."

In a 2009 column in Neue Zurcher Zeitung, a Swiss newspaper on whose board Hummler sits, he wrote that he was "influenced by '68" - a reference to his time in Paris during the street riots of 1968 - and that he had "found a philosophical father" in Friedrich Hayek, the economist-philosopher who defended free markets and capitalism.

Last week, representatives of Wegelin failed to show up in a U.S. court in New York to respond to the indictment. The bank said in a statement and legal papers that it had not been served with a criminal summons - a legal paper that often follows an indictment. The court declared the bank a fugitive, raising questions over how a trial requiring the presence of Hummler and other Wegelin executives might take place. While Hummler was not named in the indictment against the bank, the document referred to unidentified Wegelin executives as "co-conspirators."

After the hearing, Wegelin said in a statement that "the circumstances create a clear dilemma for Wegelin & Co: If it were to adhere to current U.S. legal practice aimed at Swiss banks, it would have to breach Swiss law." Swiss law protects client confidentiality under a tradition dating to the Middle Ages; Switzerland does not consider tax evasion a crime for its own citizens and residents.

Joerg Denzler, a Wegelin spokesman, declined to comment for this story or to make Hummler available, citing the bank's legal situation. Richard Strassberg, a U.S. lawyer for the bank at Goodwin Procter in New York, also declined to comment.

Far from New York, the indictment drew silence from the Swiss government; thorny questions over the fate of Switzerland's crown-jewel industry, private banking; and concerns about frayed relations between Washington and Bern, two historic allies. At the center is the figure of Hummler, who cannot travel to the United States without being arrested and so could not attend the potential trial of the bank he ran for two decades.

Hummler, 58, grew up in St. Gallen, playing violin as a child, studying law at the University of Zurich and completing a Ph.D. in economics at the University of Rochester in New York. He joined UBS AG, the Swiss bank giant, and became a personal adviser to then-board Chairman Robert Holzbach, but by 1991 had left the bank to become a partner at Wegelin. He has a Dutch wife, Elizabeth, and four daughters, is a reserve colonel in the Swiss Army and still plays a 200-year-old violin. Bach, he wrote in his 2009 column, "is an excellent antidote to my impatience and restlessness. "

LATEST U.S. MOVE

The indictment of Wegelin was the latest move by the U.S. Justice Department to clamp down on Swiss banks for their role in helping wealthy Americans dodge taxes. In 2009, in the only settlement to date, UBS paid $780 million and admitted to criminal wrongdoing to resolve U.S. criminal charges with the Justice Department that it sold tax evasion services to wealthy Americans. German, British and Italian tax authorities also launched investigations into how Swiss banks might be abetting tax cheats. The U.S. Justice Department has since expanded its criminal investigation to 11 Swiss banks, including Wegelin, Credit Suisse and Basler Kantonalbank, and Swiss officials are seeking a settlement for the entire Swiss banking industry - more than 300 banks.

A balding man with a short mustache, Hummler sat in the inner circle of Swiss private banking and finance: he was chairman of the Swiss Private Bankers Association, a trade group, for three years through mid-2011; he was part of the council that supervises the Swiss National Bank for seven years until resigning last April. Under Hummler's oversight, which began after he joined Wegelin in 1991, the bank grew rapidly, managing some $1.2 billion in undeclared U.S. assets as of 2010 from only $240 million in 2005. The bank opened several new branches across Switzerland, established an online private bank and expanded to around 700 employees from a few dozen. Swiss private bankers put Hummler's undisclosed personal wealth at least millions of Swiss francs.

Hummler courted press attention. In recent years, Hummler became particularly outspoken, telling Der Spiegel in 2009 that German tax evasion "is a legitimate defense by citizens trying to partially escape the current grasp of the administrators of a disastrous social welfare state and its fiscal policies." His bi-monthly investment commentaries, which Wegelin made available on iTunes, had 100,000 readers and urged recipients to uphold Swiss bank confidentiality and stand up to the United States.

But in more recent weeks, Hummler's public voice grew silent - a sign of his worries, according to some people familiar with the matter.

Justice officials were annoyed by Hummler's writing a "Farewell, America" letter to Wegelin clients after the UBS settlement in 2009, according to people familiar with the matter. A Justice Department spokesman declined to comment. In the letter, which was posted on Wegelin's website, he scolded the United States for "breathtaking moral duplicity in maintaining enormous offshore tax havens in Delaware, Florida and others of its states" and urged clients to sell any U.S. securities they owned given heightened Internal Revenue Service scrutiny of tax dodgers.

Hummler's letter was taken as an invitation for tax evaders to take their funds to Wegelin while UBS and other banks swept their accounts clear of tax offenders, several Swiss private bankers said. Hummler's error, rival Swiss bankers say, was in thinking Wegelin was safe from a U.S. indictment just because the bank didn't run any U.S.-based branches.

Soon after the UBS investigation hit Switzerland, Wegelin told its U.S. clients to sell all their U.S. assets held through the bank. But it also took at least $1.2 billion from Americans who were fleeing the U.S. crackdown on U.S. tax evaders at UBS over 2008 and 2009, according to the indictment. Wegelin's spokesman declined when asked for comment on this charge.

One of Hummler's friends said he was confused by this.

"What I do not understand is that Wegelin approached all its customers, in 2009, to sell all U.S. and U.S.-related assets - at the same time the bank was about to acquire U.S. customers from UBS," said the friend Heinz Zimmermann, a finance professor at the University of Basel.

Wegelin was "undeterred by the crystal-clear warning they got when they learned that UBS was under investigation for the identical practices," the indictment said.

A BANK UNLIKE THE OTHERS

Wegelin stood out long before its indictment.

Unlike most Swiss banks, with headquarters in Geneva or Zurich, Wegelin's headquarters are in the town of St. Gallen, an upscale German-speaking town of 70,300 people in the northeast of the country. Main attractions include a leading business school and an 8th Century abbey. Before Zurich's ascent as the financial capital of Switzerland, St. Gallen was an important banking hub, its wealth built on the textile industry.

In recent years, under Hummler, Wegelin refashioned a retail space below its headquarters into a bar it christened Nonolet (from the Latin phrase "pecunia non olet" or "money does not reek"). The purpose, Christian Raubach, a Wegelin partner, told Reuters in 2009, was to ensure a glossy crowd below the wood-paneled offices of the private bank, whose logo of a "W" between two griffins declares in German "Private Bankers since 1741." "You cannot have a strange business there like a kebab shop" or patrons "vomiting" after a night drinking beer, Raubach said.

Some conservative Swiss politicians and voters view Hummler as a defiant hero and Wegelin and other Swiss banks as the target of an unfair crackdown, said Robert Vogler, a Swiss banking historian. Vogler said liberal politicians and voters were less sympathetic because they had always thought tax evasion would harm Switzerland's reputation. Either way, said Boris Zuercher, Zurich-based chief economist for the pro-business think-tank Avenir Suisse, Swiss politicians missed an opportunity to rein in Swiss banks following UBS. "That represents a failing of Swiss politics," he said.

Martin Naville, chief executive of the Swiss-American Chamber of Commerce in Zurich, told Reuters that Hummler had "exposed himself pretty heavily" around 2009 by publicly calling America the "worst aggressor since the Second World War" while taking in tax-evading clients fleeing other Swiss banks in the wake of the crackdown. "Clearly, he made some people very angry," Naville said. "And usually, the boomerang comes back."

(Writing by Lynnley Browning in Fairfield, Connecticut; Reporting by Martin de Sa'Pinto in St. Gallen and Lynnley Browning with additional reporting by Zurich correspondents Katharina Bart and Emma Thomasson; Editing by Howard Goller and Richard Chang)

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