Oct 21, 2010 - 10:08
Smaller
Will some Swis sbanks have to close their doors? (Keystone)
by Matthew Allen, swissinfo.ch
The latest survey of Swiss private banks has repeated earlier warnings that smaller players may face extinction as costs rise and the flow of new assets dries up.
The Swiss wealth management industry is being squeezed by the global crusade against tax evasion, the growing cost of regulatory compliance and shrinking profits as investors exercise more caution.
Swiss banks suffered the same as competitors around the world during the financial crisis, with the pool of assets under management shrinking by nearly a fifth in 2008 before picking up by 8.4 per cent last year as conditions improved slightly.
But Switzerland also suffered from its distinction of managing the vast majority of offshore wealth in the world. A coordinated global assault against tax evasion and a series of tax amnesties saw the withdrawal of vast sums of assets from Europe and the United States.
Net new money flowing into Swiss banks increased less than one per cent in 2009 from the previous year. The vast majority of new wealth arrived from the emerging markets of Asia and South America and a growing proportion from expensive onshore operations.
The PricewaterhouseCoopers (PwC) survey of 111 private banks paints a relatively bleak picture for smaller boutiques (assets of up to SFr2 billion or $2.07 billion), and even mid-sized institutions (SFr2-10 billion), that have less room to adopt cost cutting measures or to set up onshore operations abroad.
PwC has estimated the extra cost of complying with new banking and tax regulations as being between 10 and 30 per cent higher than before. The expense of hiring staff and setting up infrastructure abroad for onshore enterprises is also prohibitively expensive for all but the biggest banks.
But Switzerland also suffered from its distinction of managing the vast majority of offshore wealth in the world. A coordinated global assault against tax evasion and a series of tax amnesties saw the withdrawal of vast sums of assets from Europe and the United States.
Net new money flowing into Swiss banks increased less than one per cent in 2009 from the previous year. The vast majority of new wealth arrived from the emerging markets of Asia and South America and a growing proportion from expensive onshore operations.
The PricewaterhouseCoopers (PwC) survey of 111 private banks paints a relatively bleak picture for smaller boutiques (assets of up to SFr2 billion or $2.07 billion), and even mid-sized institutions (SFr2-10 billion), that have less room to adopt cost cutting measures or to set up onshore operations abroad.
PwC has estimated the extra cost of complying with new banking and tax regulations as being between 10 and 30 per cent higher than before. The expense of hiring staff and setting up infrastructure abroad for onshore enterprises is also prohibitively expensive for all but the biggest banks.
Deals being sought?
However, Switzerland remains an attractive venue for private banking thanks to its long tradition of managing wealth. PwC expects to see investors from eastern Europe, the Middle East, Asia and Latin America snap up struggling Swiss players in the near future.
“We expect to see increasing consolidation among small and medium- sized banks in the coming years,” the report states. “Small private banks in particular that have focused in the past on cross-border asset management, face challenges in the changing environment.”
This is an expectation that has been aired before. A survey by KPMG and the Swiss Banking Institute at the University of St Gallen a year ago drew the same conclusions.
But the forecast cherry picking of smaller private banks has yet to materialise, with the majority of takeovers involving Swiss banks grabbing wealth management units divested by foreign counterparts.
Some observers believe this is because potential buyers are biding their time to get better deals as problems mount and asking prices dip. Many Swiss private banks, however, dismiss such consolidation claims, arguing that smaller players are more nimble and better able to innovate and adapt.
“We expect to see increasing consolidation among small and medium- sized banks in the coming years,” the report states. “Small private banks in particular that have focused in the past on cross-border asset management, face challenges in the changing environment.”
This is an expectation that has been aired before. A survey by KPMG and the Swiss Banking Institute at the University of St Gallen a year ago drew the same conclusions.
But the forecast cherry picking of smaller private banks has yet to materialise, with the majority of takeovers involving Swiss banks grabbing wealth management units divested by foreign counterparts.
Some observers believe this is because potential buyers are biding their time to get better deals as problems mount and asking prices dip. Many Swiss private banks, however, dismiss such consolidation claims, arguing that smaller players are more nimble and better able to innovate and adapt.
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