Swiss private banks still face internal pressures – SNL report
Switzerland is not suffering extreme capital flight as a result of international tax deals, but the sector is still under pressure and analysts see a consolidation wave ahead, according to a report from data and services provider SNL.
Although Switzerland enjoys a relatively strong economy, the combination of regulatory pressures, the onset of the financial crisis and a push toward legitimate dealings in taxed “white money” has meant Swiss private banks have had to fight harder than ever to bolster their bottom lines, the report found.
While SNL data shows that the level of AUM at banks of all sizes has stayed relatively stable in recent years, a study by KPMG and the University of St. Gallen shows that profitability is decreasing.
The study looked at 100 Swiss banks excluding international players UBS and Credit Suisse, finding that ROE has declined steadily between 2006 and 2011, to an average of 3.8% from 13.9%. During this period, profit at 78% of the Swiss banks studied dropped by at least 10%.
Most of all, it is the smaller banks that are coming under fire. SNL data shows that most banks in Switzerland experienced a drop in managed assets between 2008 and 2009 as a result of the financial crisis.
Daniel Senn, KPMG partner and head of financial services in Switzerland, told SNL assets are moving between institutions within Switzerland. “What our study has shown is that the level of AUM has not really decreased in Switzerland, but there is now a concentration at the larger banks, as assets have moved from the small institutions,” he explained.
Costs are also a big headache for Swiss private banks, irrespective of size. According to the KPMG study, even the most efficient banks are scrambling to keep costs down as a result of the financial crisis. Only 60% of banks achieved a cost-to-income ratio of 84% or less in 2011, compared to 95% of banks in 2006.
Smaller Swiss banks with AUM of CHF5bn or less tend to have especially low ROE and high cost-to-income ratios. The most successful had clearly defined niche strategies and customer focus, SNL said.
The same cost-cutting strategies, such as outsourcing back-office staff, are available to banks of all sizes, and many smaller players are taking this route. But cost cutting still does not address falling revenues, as risk averse clients remain in cash.
Recently concluded international tax agreements are also pressuring both clients and banks. A total of 148 institutions dealing in private banking were counted at the end of 2012, compared with 169 at the end of 2008, according to the KPMG study.
Read the full SNL report here: http://www.snl.com/InteractiveX/Article.aspx?cdid=A-16663159-12330