Switzerland

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  • Date: 8/29/2013

Increasing consolidation among Swiss private banks 

The major Swiss private banks have achieved considerable year-on-year growth and have performed more consistently overall. However, the situation remains critical for numerous smaller and midsized banks. This is demonstrated by a study by KPMG and the University of St. Gallen (HSG).
In 2012, too, Swiss private banks also faced new regulations and increasing business complexity. The study «Performance der Schweizer Privatbanken 2013» (Performance of Swiss Private Banks 2013), which was prepared jointly by KPMG and the HSG, used the annual reports of more than 100 Swiss private banks to assess their business development between 2006 and 2012 and calculated the specific financial impact of what was still an unstable economic and political environment. On the one hand, the study shows that, overall, local private banks – aided by positive stock market performance – have increased assets under management, revenue and earnings. On the other hand, however, the results also illustrate that the situation remains critical particularly for small banks managing assets of less than CHF 5 billion, and that the percentage of institutions operating at a loss and at an unsustainable level is stagnating.
Key findings from the study: 

 

  • Returns on equity still insufficient: On average, returns on equity increased by 3.8% to 4.0%. However, this is still considerably below a figure that takes adequate account of risk, which should be around 8% to 10% depending on the bank. Furthermore, there are substantial differences between the individual market participants. At 6.9%, return on equity for large institutions is considerably higher than that of smaller ones (3.1%). The gap widened further in 2012. The efforts of banks that proactively adjusted their business model appear to be paying off, and they were able to improve their performance even in a difficult environment. The wheat has begun to separate from the chaff in this respect.

 

  • Continuing losses: At 23%, the percentage of banks operating at a loss was high in 2012 as well. The banks affected were exclusively small and midsized. Although many of them had already recorded losses over the previous four years, they were able to absorb them due to their comfortable equity cushion. Shareholders still seem willing to accept losses.

 

  • Market-driven recovery of assets under management: It was primarily the positive investment performance that made for an increase in assets under management in 2012 – by an average of 4%. However, organic growth proved difficult to achieve. More than half of the banks lost client assets, and only 20% of the institutions attracted more than 10% in new funds.

 

  • Personnel costs stable, but high: Although over half of the market participants cut jobs, the number of employees at large private banks increased in comparison to the previous year – the banks analyzed employed more people in 2012 than in 2011. The ratio of personnel costs to net income increased to 50% (41% in 2006). Overall, personnel costs per employee remained at around CHF 213,000 in 2012. They increased slightly for the first time in a long while at large banks.

 

  • No clear cost reduction discernible: Viewed across all banks analyzed, the average cost/income ratio decreased for the first time since 2007. However, at 80%, it is still very high with, again, considerable differences between the individual market participants. Large private banks reduced their cost/income ratio from 77% to 71%, whilst small banks remained stuck at 82%.

 

  • Sharper fall in private bank numbers: The number of private banks decreased by a significant 13 in 2012 to 148. This accelerated consolidation is primarily due to more liquidations and not to heightened M&A activities. What is striking in this regard is the increasing number of M&A processes that could not be successfully concluded. The reasons for this include purchasers not wanting to take on risks, and banks up for sale focusing too little on strategy in some cases.

The challenging economic and political environment and the persistent pressure from other countries will fuel the trend toward further consolidation. KPMG therefore expects the number of Swiss private banks to decrease by between 25% and 30% in the next three years. To cope with the strong pressure to change and with regulatory and political challenges, institutions must continue to review their business models and structures on an ongoing basis and work out what their ideal critical mass is and where they can grow.

MethodologyThe study «Performance der Schweizer Privatbanken 2013» was prepared jointly by KPMG and the University of St. Gallen (HSG). It is based on the annual reports of 103 private banks in Switzerland. The two major Swiss banks were not included in the study.

 

Simone Glarner

Simone Glarner

Head of Media Relations

+41 58 249 55 71

Clarity on Performance of Swiss Private Banks

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The study by KPMG and the University of St. Gallen (HSG) analyzed the annual reports of 94 Swiss private banks, assessing their financial performance to identify success factors in the industry.

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