Golden opportunity for fragmented Swiss private banks

Notenstein La Roche private bank was sold by Raiffeisen to Vontobel earlier this year. © KEYSTONE / GIAN EHRENZELLER

The time is ripe for Swiss private banks to make the most of the best market conditions since the financial crisis, says KPMG. But the consultancy firm fears that not all banks are positioned to make hay while the sun starts to shine again on the industry.

The annual study of Swiss private banking by KPMG and the University of St Gallen has found some signs for optimism following a decade of gloom. Profits across the 90 banks surveyed have risen along with assets under management (AuM), which had swollen to CHF2.6 trillion ($2.65 trillion) by the end of last year.

“2017 was a positive year for Switzerland’s private banks” trumpets the Clarity on Performance of Swiss Private BanksExternal link report. “After years of struggling with structural change stemming from the financial crisis, the tide has begun to turn.”

This follows a difficult few years that saw a severe dislocation of the financial markets, a prolonged period of rock bottom interest rates and the demise of the fabled Swiss banking secrecy – a fundamental pillar that had underpinned previous decades of private banking success.

The tumultuous episode has seen the number of private banks in Switzerland fall from 163 in 2010 to the current number of 107. This spate of bankruptcies, mergers and acquisitions looks to have slowed considerably but is by no means at an end, according to KPMG. But banks have been presented with a golden opportunity to put their past travails behind them.

Foreign competition

The comparatively rosy picture now confronting Swiss private banks is far from uniform across the sector. Just over half the 90 banks surveyed displayed below average performance, with 23 posting losses last year despite improved market conditions.

The report expressed concern that costs, particularly personnel expenses, are still out of control. “If markets suffer a downturn, many private banks will find themselves back in trouble,” KPMG concludes. This would only serve to shift competitive advantage to other global wealth centres, such as Singapore.

The industry as a whole has relied more on improving financial markets to boost the size of client assets under management than attracting new wealth. A disappointing haul of CHF21.3 billion in net new money was also fragmented. Only seven banks managed to attract more than CHF1 billion from new clients while 12 saw net withdrawals of the same magnitude.