One in three Swiss private banks to disappear in next three years – KPMG

Around a further 30% of Swiss private banks will exit the market over the next three years through acquisitions and liquidations, KPMG Switzerland anticipates.

The firm has conducted a study on the performance of Swiss private banks in partnership with the University of St. Gallen.

It said that the number of private banks from 130 at the last count is likely to fall under 100.

“The number of Swiss private banks has already fallen from 170 at 31 December 2008 to 130 at 31 July 2015, being a 24% reduction,” the report underlines, highlighting as well the withdrawal of Anglo-American private banks from the Swiss market.

KPMG’s report mainly shows that the gap between Swiss private banks is widening.

“While private banks are attempting to adapt their business models, only a small group of very strong institutions have managed to increase their profitability”, commented Philipp Rickert, head of Financial Services and member of the executive committee at KPMG Switzerland.

According to him, banks relying on undeclared legacy assets will “not survive in the medium term.”

KPMG’s study finds out that the pressure will increase on Swiss smaller banks and let them facing a “stark decision” : either leave the market or adapt their business models.

“However, they don’t have much time left to make the necessary changes”, explained Christian Hintermann, head of Advisory Financial Services at KPMG Switzerland.

“In general, many banks still appear to be undecided on which path to choose. We can expect the face of the industry to change significantly over the coming years,” he added.

The report spots a pause in the M&A activity in the Swiss market since the beginning of the year.

“This is largely due to a lack of sellers as well as potential buyers’ concerns about unforeseeable risks related to undeclared client funds and business practices that are no longer accepted. However, we expect M&A activities to regain momentum, in part thanks to the increase in settlements between banks and the US Department of Justice,” the firm pointed out.

“When Swiss private banks better understand the impacts on their business of tax transparency initiatives – and when smaller Swiss private banks decide on their strategic direction – we expect the “pause” button to be released and M&A activity to pick up.”

The research highlights that a new CEO does not necessarily improve financial results. Over one third of the private banks surveyed have replaced their CEO at least twice in the last nine years.

“In many cases, this has done nothing to improve their financial position in the two years after the changeover.

“Financial institutions that had kept the same CEO for the last nine years or only changed CEO once achieved higher returns on equity than banks that changed CEO two or more times,” KPMG said.

Among other findings, the study shows that the 7.3% growth in managed assets in 2014 can be imputed to positive markets developments and a strengthening US dollar.  However, net inflows only account for 0.5% of those assets.

“There were marked differences between the various banks: those in the groups «Strong Performers» and «Turnaround Completed» achieved net inflows of CHF24.9bn (€23bn) in total in 2014.

“Meanwhile, banks in the groups «Decline Stabilized» and «Continuing Decline” saw net outflows amounting to CHF17.9bn (€16.5bn).”

More about the study : pub-20150825-performance-swiss-private-banks-en

Adrien Paredes-Vanheule
Adrien Paredes-Vanheule is deputy editor and French-Speaking Europe Correspondent for InvestmentEurope, covering France, Belgium, Geneva and Monaco. Prior to joining InvestmentEurope, he spent almost five years writing for various publications in Monaco, primarily as a criminal and financial court reporter. Before that, he worked for newspapers and radio stations in France, in particular in Lyon.

Read more from Adrien Paredes-Vanheule

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