Market conditions are becoming harsher, piling even more pressure on a Swiss private banking industry that is already under great stress. We take a look at the performance of 87 Swiss private banks since 2010, to gauge how well they are coping with an environment of continuous change.
It seems as though recent years have produced one challenge after another for Switzerland’s private banks. Let’s set aside the immediate aftermath of the global financial crisis and instead focus on what has been happening since 2010. Transparency, increased regulations, the demands of a new generation of clients and now harsher market conditions. How are banks faring in this ‘new reality’? In our latest study, “Clarity on Performance of Swiss Private Banks – Further and faster: Radical change needed”, we analyzed the results of 87 private banks in Switzerland since 2010. The results are striking enough to give even the most seasoned private banker sleepless nights.
10% fewer competitors, but that’s not necessarily a good thing
Like most business-people, private bankers enjoy healthy competition. But when banks are disappearing at the rate of around one per month, that’s a most unhealthy environment and more people need to start worrying. Last year we predicted that the number of private banks in Switzerland would fall by 30 percent over the coming years. If 2015 is anything to go by, our prediction may well prove to be conservative.
Despite their efforts to transform, banks are not gaining ground
In our sample of 87 banks, only six continuously improved their RoE over the past three years. In 2015, RoE fell at a staggering two-thirds of banks. Market conditions such as foreign exchange and negative interest rates have combined with continuing regulatory change to pile on the pressure, but the fact is that while many banks are genuinely seeking to transform, measures are happening neither quickly nor do they go far enough.
Are you able to secure new clients?
Swiss private banks generally failed to secure Net New Money (NNM) last year – in fact, NNM in 2015 was a marginal CHF 4.3 billion. Assets under management in Switzerland fell by CHF 100 billion last year alone. The weakest performers saw net outflows of negative 5.7 percent. Even the strongest banks achieved only positive 1.9 percent. This level of assets will not yield a recovery across the industry.
Growth is the answer, but how to achieve it?
We’re all familiar with the positive effects that scale efficiencies and synergies can bring. But only a few banks are able to pursue the growth that is needed to realize these benefits. In our sample, it is the larger banks that were able to undertake more acquisitions, helping them improve RoE and reduce their cost-income ratios.
Recovery cannot happen without investment
Too many banks continue to operate old core banking systems. These might be cheaper to operate, but they have one huge drawback – the lack of flexibility they afford their owners. And flexibility is key to meeting clients’ evolving needs and to move into the increasingly important digital banking space.
The ability to successfully tackle these issues of course depends on various factors, including how seriously a bank invests in its turnaround plans, its willingness to focus on a reduced number of markets and the extent to which management is prepared to enter into outsourcing arrangements for back office functions. For many banks, these challenges may be insurmountable. But for others, radical, positive change may produce a business and operating model that will suit the new reality of the private banking world. And ultimately stop the bank from joining the ‘disappearing’ 30 percent…