Swiss private banks with midmarket focus face challenging market

The private banking industry in Switzerland remains world leading, and in recent years total assets under management have continued to enjoy steady growth. Not all market segments have enjoyed the fruits of growth, however, with particularly middle-market players seeing declines across all major indicators.

Switzerland is known, among others, for its Alps, cows with bells, direct democracy and private banking. While the phenomenon of Swiss bank account numbers providing almost complete anonymity is behind us, the region still boasts some of the largest and smallest, private banking institutions in the world.

In a new report from Roland Berger, titled ‘Quo vadis, Private Bank?’, the firm explores changes within the private banking landscape within Switzerland and Liechtenstein. The report is based on an analysis of publicly available performance figures over the five years between 2011 and 2016 for 55 private banks, with more than CHF4.9 trillion under management between them.

The private banking landscape in Switzerland remains unmatched. The country has the most private banks in the world, while the sector itself remains diverse in terms of the size of providers* – from banks with hundreds of millions under management, to banks managing trillions. The largest players in the landscape are UBS and Credit Suisse, with 54% of the CHF4.9 trillion under their management alone. The 20 largest banks within the firm’s sample of 55 account for 94% of the assets under management.

The firm’s analysis finds that the Swiss private banking scene has remained relatively stable over the past five years, although profitability is becoming harder to book. The survey found that since 2011 AuM at Swiss banks surveyed has increased from CHF3.3 trillion in 2011 to CHF4.2 trillion** in 2015 – with a small, 2% decline between 2014 and 2015, partly as a result of the Swiss Franc being unpinned from the Euro. Net new money has, compared to 2011, fallen by -19.8% to CHF88 billion, which resulted in a decline of the growth of net new money from 3.5% to 2%.

Different market segments varied in their respective performances, the research finds. The largest and smallest players tending to perform relatively well, while medium-sized private banks have fallen on hard times. The large players, putting aside universal banks UBS and Credit Suisse, have seen their growth in assets under management between 2011 and 2015 hit +44.7%, while growth through new money reached +25.2% in the same period. Medium sized banks, on the other hand, saw an average -4.5% in growth in assets under management and -4.4% in growth through new money. Small banks performed particularly well in terms of growth in operating results, at +129.8% for small private banks and +103.5% for very small private banks – medium sized banks saw a -53.9% decrease.

"75% of all private banks have lost revenue and/or gross margin in the past five years. The cost/income ratio remains ‘stable’ at around 79%, however, thanks to cost measures that have already been taken," explains Thomas Volland, Principal and private banking expert at Roland Berger Switzerland.

The research also finds that for all banks surveyed, there has been a relative decrease in gross margins in the years between 2011 and 2015. At universal banks, gross margins fell by -14%, while at large private banks they dropped by -15%. Medium-sized private banks saw a decrease of -23% – again the furthest to fall. Small private banks saw a decrease of -5% while very small private banks dropped -7%. Changes in payroll were also relatively significant, with, in absolute terms, a drop of 64,300 full-time employees between 2011 and 2015, largely at the Universal banks. Smaller players saw increases in payroll costs, which are due to both increases in staff levels as well as an increase in remuneration costs.

“The clear winners according to our quantitative analysis are the large private banks (AuM over CHF 100 billion), following significant acquisitions and strong organic growth. Fortunately, however, many of the small and smallest private banks are also proving to be robust and fast-growing,” says Robert Buess, Partner and private banking specialist at Roland Berger in Zurich.

European banking landscape

A recent analysis from another consulting firm, A.T. Kearney, found that across the board European banks are improving their financials and operations, yet they still have a way to go to meet analyst expectations and match international best practices.

* In terms of total assets under management: Universal banks >CHF500 billion; Large private banks CHF100-500 billion; Medium-sized private banks CHF25-100 billion; Small private banks CHF10-25 billion; Very small private banks <CHF10 billion.

** CHF600 billion is excluded from three banks whose figures do not extend back to 2011.