Swiss Banks: Consolidation in Sight

Swiss Banks: Consolidation in Sight
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According to Prof. Dr. Urs Birchler, Department of Banking and Finance of the University of Zurich, Swiss banks are dealing with high costs levels and smaller banks performing slightly better than bigger ones since the halt of gross margins erosion in 2006..

“For the international wealth management industry, 2012 was a more benign year than the harsh 2011. Due to favorable stock and bond markets the volumes of managed funds increased, though not returning to pre-crisis levels. In addition, most banks managed to attract new funds. Nevertheless, the biggest wealth managers lost some market share to medium-sized competitors. Post-crisis low turnover and low interest rates still put pressure on returns, while cost levels remained sticky. The cost/income ratio remains critical even though gross margins on managed assets stabilized from 2011 to 2012. This is particularly true for Swiss banks and, after a significant deterioration over the last few years, for Liechtenstein banks.”

Another important factor since the crisis: “International initiatives against tax evasion and pressure on offshore oriented private banking centers have hit Switzerland hard. Bank data theft, the fear of involuntary disclosure and various tax amnesties have led to the loss of profitable client mandates for banks.”

The Federal Court ruling to limit commission fees is another challenge to the Swiss wealth management business model.

Based on these assumptions and the foreseeable future, Urs Birchler concludes his article by stating that a consolidation of the Swiss banking industry is inevitable:

“In revenue-per-employee figures and in cost/income ratios, though, the more labor-intensive smaller banks are falling behind their bigger competitors. “For all Swiss wealth managers, the cost levels remain high, but for some smaller banks, costs may be too high in the long run,” warns Urs Birchler. “Consolidation seems unavoidable. In the future, additional costs imposed on the banks by increased international regulation may considerably change the face of the industry and in turn threaten the survival of a number of long-established Swiss private banks.”

Source: International Private Banking Study 2013, Urs Birchler, Christian Bührer, René Hegglin, Lukas Meier, and Florian Reeh, October 23, 2013.

Picture: Schweizerische Nationalbank by Jim / FlickR