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Radical shakeup of Swiss private banks needed

Swiss private banks are failing to address rapidly declining profitability and are too focused on defensive measures to implement a radical transformation that will allow them to generate competitive advantage and sustainable growth, says KPMG.



Kirsten Hastings

“Nothing less than radical action” will reverse the decline in Swiss private banking, say report authors Philipp Rickert and Christian Hintermann.

The KPMG pair conceded that progress to tackle underlying performance issues is being made by a small number of banks, but added that the step-by-step approach adopted by some “is insufficient”.

With Switzerland committed to start exchanging information under the Common Reporting Standard in 2018, the traditional lure of Swiss bank accounts has likely been made less appealing.

Two of the most promising strategies for turning the decline around are to provide more tax advice to clients and purchasing client portfolios in selected areas.

Worst result in six years

Net outflows were experienced by 56% of Switzerland’s 114 private banks during 2016.

The total assets under management loss of CHF43bn (£34.3bn, $45.2bn, €37.7bn) was the worst net new money result since 2010.

This figure equates to 3% of the total AUM held by Swiss private banks that year.

The KPMG duo were mildly optimistic that this could have a positive longer-term effect, as it was largely due to banks exiting non-core markets and client segments.

Operating margins hit a seven-year low in 2016, with net commission income under severe pressure and competition for clients intensifying.

Bank numbers dropping

There has been a steady decline in the number of private banks in Switzerland over the past 12 years.

The sharpest fall since 2010 has been in banks with AUM in excess of CHF25bn, which dropped 39% to 64 in 1H17.

Medium-sized banks were down by 22% to 29, while small banks with AUM under CHF5bn dipped 10% to 19.