The big update about the Swiss banking sector this year came bearing better news. In August, the Swiss private bank Pictet Group reported its financial results publicly for the first time in its 209-year history.
A week later, another private bank, the Lombard Odier Group, formed in 1796, reported its results for the first time. While the demise of secrecy was noted in large headlines, more interestingly, both the banks showed healthy profits, underscoring that the combination of Swiss and banking is worth more than inaccessible records.
Patrick Odier, Senior Managing Partner, Lombard Odier Group, says in a statement, “Our group is increasingly diversified, more international and more balanced between private and asset management clients and we are expanding our partnerships with financial services providers. Our solid net profit allows us to continue investing in all three businesses.”
According to the Swiss Bankers Association’s (SBA) annual Banking Barometer released in September, “The banks in Switzerland continue to play an important role for the Swiss economy, despite the sustained pressure to consolidate and the difficult international and domestic market conditions.” Last year, the operating net income of the banks in Switzerland increased to 60.8 billion Swiss francs (about Dh233.8 billion) and their assets under management rose by 340 billion Swiss francs.
Pictet, a privately held Geneva-based wealth manager, introduced structural changes to become a traditional corporate partnership instead of a limited liability partnership. >
Rémy A. Bersier, Head of Private Banking Region Southern Europe, Middle East and Africa, Julius Baer, tells GN Focus, “A couple of private banks in Geneva changed their ownership and gave up their century-old partnership structure. As a consequence, they have to report some key figures for the first time. In contrast to these institutions, many of the leading banks such as Julius Baer are listed companies and have offered full transparency to their investors and clients for a long time.”
However, there is no denying that developments in international tax laws as well as in domestic and European regulations had a negative impact in terms of costs and margins on businesses. As the year passes, more such changes or consolidation may be expected.
The European Banking Barometer says, “The current developments will likely result in consolidation in the banking sector as well as in structural change.”
It lists that at the end of 2013, the number of banking institutions in Switzerland decreased by 14 to a total of 283. Last year there were eight acquisitions, one merger, five banks lost their bank status and one foreign bank branch was closed. This trend toward consolidation continued in the first half of this year, particularly for foreign banks. A further shrinking of the Swiss banking sector is to be expected in the coming years.
Some experts estimate that only a bank with a minimum asset base of ten billion Swiss francs will be able to survive in the future. Andy Aeschbach, CEO of Katana-Coaching, a certified coach and consultant for wealth management and private banking, tells GN Focus, “I don’t particularly agree there. A financial service provider can survive with less assets under management. However, a niche has to be created and a so-called USP would have to be clearly defined and evaluated,” he says.
This holds true in case of Pictet, where the first financial report says, “As an investment-led service company, we offer only wealth management, asset management and related asset services. We do not engage in investment banking, nor do we extend commercial loans.”
Defending its position
One of the important areas of the changing realities is the focus on emerging markets. The Banking Barometer attributes the growth in assets to inflows from emerging markets — primarily from Latin America and Eastern Europe — as well as from positive developments in capital markets.
“In contrast, assets from Western Europe decreased. This is likely due to the regularisation of legacy assets and the ensuing tax settlements. Further outflows of client assets from Western Europe should be expected in the future. At the same time, assets from emerging markets are expected to continue their upward trend,” the Barometer reveals.
Bersier says, “We have anticipated these trends early and thanks to our financial strength and well-diversified business we are benefiting as an active consolidator. A very important pillar for us is our growth market business. As with the Middle East, where we celebrate our tenth anniversary this year, we embarked early in these fast-growing and dynamic regions and now have close to 50 per cent of our assets from growth markets.”
Last year, the share of foreign assets under Swiss banks’ management remained unchanged at just slightly over 50 per cent. The Swiss banking sector was able to defend its position in the global cross-border private banking business and remains the global market leader with a share of 26 per cent. Forecasts indicate that Switzerland will maintain its global first-place ranking for the medium term.
Bersier says, “Our home market is our biggest in terms of client base. We are still growing, but not at the rates we see in more dynamic regions such as the Middle East, Asia or Latin America.”
Export of services
Some within the banking fraternity have encapsulated the paradigm shift as replacing importing of clients with exporting of services. Others call it a shift towards advice and investment management business. Certainly performance is in focus. “Swiss bankers are well educated and very well trained due to the complexity of our education and nature within the business of relationship management and private banking, which is definitely one of our strengths,” says Aeschbach.
Certainly, Swiss bankers are keen to find their place in the emerging world order rather than look backwards. So much so, that when a member of Swiss parliament and banker, Thomas Matter proposed the “Yes to the protection of privacy” initiative, to anchor bank secrecy in the country’s constitution, with the aim of protecting Swiss clients right to secrecy, the SBA stood firm in not supporting it. According to a statement issued by SBA,“Under the initiative, simple tax evasion remains possible and even becomes enshrined in constitutional law. This contradicts the objectives of a tax-compliant financial centre,” adding that banks are not the tax police and are not responsible for their clients’ tax situations.
“The banks and the bankers would be exposed to increased liability risks and would have more responsibility, in that, for example, they could be compelled to testify against their clients,” the statement says.
Christophe Seefeld, Founding Partner, Sandrose Management Consultancy, says, “Without the emphasis on secrecy the profile of clients may change. One of the trends that may emerge is that the clients would become more demanding on performance.”
By embracing the new, improved regulatory regime, the industry has set its sights firmly in the future, focusing on the emerging markets where the number of new millionaires is increasing. In the Middle East, the one trend of significance is the increasing number of family offices. Seefeld, says, “The number of ultra high-net-worth individuals is increasing every year. For many of them, succession planning, the need to involve their children and organising control of their assets is an important requirement that can only be met by a family office.”
