Swiss private banks fight to survive

The SNB’s decision to lower interest rates will reduce the profitability of domestically orientated banks, according to Moody’s Keystone

The sudden appreciation of the Swiss franc has intensified pressure on Switzerland’s private banks, raising the prospect of job cuts and bankruptcies.

The Swiss National Bank’s decision two weeks ago to abandon the cap it imposed to stop the franc appreciating against the euro caused the domestic currency to soar, before the franc pared back some of the gains last week.

Analysts and bankers believe the dramatic central bank U-turn will be extremely damaging for Swiss private banks and asset managers that have a high proportion of their costs in Swiss francs, but most of their revenues in foreign currencies.

Moody’s, the rating agency, said Julius Baer, Zuercher Kantonalbank, Credit Suisse and UBS will “suffer most” from currency translation effects on their foreign currency-denominated asset bases.

A spokesman for Julius Baer, Switzerland’s largest private bank, confirmed to FTfm that staff cuts are one of the measures under consideration to reduce costs.

Thomas de Saint-Seine, chief executive of RAM, a Geneva-based wealth manager, said his group will restrict hiring in Switzerland and negotiate terms with its service providers to try and mitigate the currency turmoil.

The chief executive predicted net profitability will fall 15-20% if the foreign exchange rate remains at the current level.

“This will make [survival] very difficult,” said Christian Hintermann, Zurich-based partner at KPMG, the consultancy. “The large private banks will handle this. The small banks [with less than CHF10bn ($11.4 billion) in assets] are really the ones in danger.”

The worst-affected banks will lose between 10-15% of their fee income, according to Mr Hintermann. This will exacerbate pressure on the Swiss banking sector, which is already grappling with a global shift towards onshore assets, increased tax transparency and a US investigation into Swiss banks that had undeclared American customers.

Burkhard Varnholt, Julius Baer’s chief investment officer, said: “The surge of the franc has been a blow to all companies whose costs are predominantly Swiss. Investors hate volatility and uncertainty and this is exactly what has happened. It is a challenge to any private bank around the globe.”

‘Difficult years’

The SNB’s simultaneous decision to lower interest rates from -0.25% to -0.75% will reduce the profitability of domestically orientated banks, in particular St Galler Kantonalbank, Berner Kantonalbank, Valiant Bank and Clientis, according to Moody’s.

Berner Kantonalbank said its net interest margins were likely to narrow further but declined to comment on the impact on profitability. 

A spokesperson for St Galler Kantonalbank said: “The SNB decision has taken us by surprise. We are currently analysing the effects of this decision.”

Other large private banks and fund groups moved to reassure investors and shareholders that they would be resilient.

Martin Moeller, head of equities at UBP, the Geneva-based private bank, said: “Private banking has had a couple of difficult years already. I don’t think this will lead to any bankruptcies but [some private banks] will consider their options.”

Swiss private bank Notenstein added that 70% of its customer base is in Switzerland and that it had not incurred any losses. EFG International predicted a single-digit impact on its profits before tax.

Ray Soudah, founder of Millenium Associates, the Swiss strategic consultancy, was less optimistic. He said: “The first likely action is further staff reductions and cost cutting at home, as well as domestic takeovers. Foreign buyers of Swiss banks will hesitate.”

Copyright The Financial Times Limited 2015