Flight or Fight? Swiss private banks must come off the fence

in Financial Services, 09.11.2015

Flight or Fight? Private banks are being faced with a tough decision: whether they prefer to adjust their business and operating models to the new realities or to exit the market. For sure, the recent news of a private bank’s insolvency is still considered a rather extraordinary event. In its press release, the FINMA speaks of “on-going losses”, “no perspective of a reorganization”, “endeavors were not successful” and “no investors were available that were deemed to be suitable for a takeover”. What was extraordinary in this particular situation was that, according to the FINMA, there was a shortfall in the minimum required capital. However, most private banks dispose of a solid shareholders’ equity base and in many cases could cover operating losses with excess capital for some time. However, there are other aspects that many private banks are also struggling with: Our study, Performance of Swiss Private Banks, showed that nearly 30% of all private banks in our sample are experiencing operating losses – and already for many years! Numerous other private banks are not facing operating losses but they are nonetheless in an unsatisfactory situation. To some degree, their results are also being impaired with more stringent requirements and duties, especially the Automatic Exchange of Information (AEoI), negative interest rates and the strong Swiss franc.

Our recommendations

There is a great need for action. We recommend that banks analyze their situation to determine where they currently stand.

  • What does their financial performance look like?
  • In which markets are they active?
  • Are they capable of attracting new clients?
  • Are their customer relationship managers the right ones?
  • Do they have the right services on offer for their target audience?
  • What is their cost base? Do they have efficient processes?

Such an analysis will help banks identify the gap between their current situation and where they wish to be. Depending on the size of the gap, banks have different options; they could:

  1. optimize their current business model
  2. redesign their business and operating model
  3. sell or liquidate the bank.

In view of the dynamics in the world of private banks, banks should not dither too long as their options are becoming increasingly smaller. Specifically, we have observed that the sale of banks that do not meet certain quality requirements is becoming ever more difficult.

Despite these often gloomy messages, it should nonetheless be clearly stated once more: private banking is still a viable industry where Switzerland is still the global leader. It is possible to be successful and profitable in this business, as the group of banks which we called “strong performers” in our study shows.

 

 

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