For Swiss private banks the last few years have been characterized by high volatility, low interest rates, a strong Swiss franc and reduced earnings. These features along with a marked increase in regulatory costs have put margins under enormous pressure and are forcing banks to develop sustainable growth strategies. This requires a clear focus, backed by an appropriate vision and strategy. The latest study on private banking carried out by KPMG and the University of St. Gallen, “Performance through focus – seizing the global private banking opportunity,” also analyzes the key success factors for private banks in Switzerland, Luxembourg, Austria, Hong Kong and Singapore.
The banks in all the countries examined were in agreement on the most important factors relating to location: political stability comes right at the top, followed by client data confidentiality. Over 90% of the private banks surveyed consider political stability to be the main selling proposition. Stability of the tax system and the overall quality of the local banks are likewise regarded as very important, particularly by Asian private banks. While Swiss private banks also consider the overall quality of banks as important, they attach significantly less importance to the stability of the tax system.
However, these country-specific factors no longer suffice as key differentiators. Individual strengths are required at bank level. In this respect, very great value is placed on the specific banking culture, with Asian private banks attaching more weight to client advisory services and bank products. In Luxembourg financial engineering comes next highest, with brand management and client advisory services occupying second place in Austria and Switzerland respectively.
There is clear potential for growth in global private banking, primarily driven by business with clients from the emerging markets. The challenge is to develop the geographical growth strategy so that profitability can be increased and the bank’s strengths can be fully exploited. The study shows, however, that some private banks still lack a clear vision for their geographical approach. Most Swiss private banks surveyed continue to rely on established cross-border business to acquire clients abroad. This is, however, increasingly reaching its limits due to tighter regulation and its effect on cost. Even a local presence entails high costs. Accordingly a clear focus on identified target markets and the consistent withdrawal from other countries are necessary.
Of all the private banks surveyed, the geographical ambitions of Swiss financial institutions are the most far-reaching: they are striving for growth in countries in central and eastern Europe and the CIS as well as in countries in the Middle East, Asia and Latin America. Austria sees itself primarily as a crossroads between western and eastern Europe and accordingly focuses on markets in central and eastern Europe and the CIS. Luxembourg concentrates on countries in western Europe and so makes use of access to the free market within the EU. Singapore and Hong Kong focus on the surrounding emerging markets in China, India, Indonesia and the Philippines. They show no interest in the stagnating markets in Europe.
For European, and sometimes also Asian private banks, M&A activities are an important way of strengthening their own positions as the size of the institution plays a central role in the face of high regulatory and IT costs. Worldwide the number of private banks that were sold has remained stable for the last five years with some 40 transactions per year. Up until now around half of all deals took place in Switzerland and the USA but this has recently changed slightly in favor of banks being sold in emerging markets. In Switzerland the long anticipated wave of consolidations gathered momentum in the second half of 2011 in particular.
The private banks surveyed agree that full tax compliance will be imperative in future. Political pressure from the USA, EU, OECD and G20 has become too strong. MiFID, cross-border regulations and FATCA are driving operating costs up and forcing banks to change their business models. Swiss private banks are experiencing regulatory pressure from the USA and EU in particular, and significantly less from emerging markets. Banks in Luxembourg and Asia have made considerably more progress in implementing tax-compatible strategies than Swiss financial institutions. However, four fifths of all banks in this country want to meet the requirements for tax-transparent information within five years. Regularizing the past presents a particular challenge. The agreements concluded with Germany and the UK are an effective solution here. The study shows that banks in Luxembourg also want to find a similar solution.
A key success factor for the future is clear segmentation of target clients and markets, involving a conscious decision about to whom the bank wants and does not want to offer services in the future and to whom it wants to stop offering such services. This applies in particular to small private banks. To this end, the bank must know the precise needs of its clients, on the one hand, and previous performance of the various different client segments, on the other. A future focus on certain regions, age groups or religions can also play an important role. In turn, this knowledge enables further development of products and services, communication and above all the necessary advisory skills. Ultimately, it is these factors that determine the positioning of the bank.
There are large variations between Asian and European private banks when it comes to products and services. Firstly, as far as the significance placed on them is concerned: 83% of Asian private banks see the range of services offered as an essential differentiator, whereas the figure is only 49% among European institutions. Secondly, in evaluating which services are important: Asian clients want integrated financial services covering wealth management as well as real estate, commodities and investment banking services. Asian banks therefore see great benefit in a mutual exchange of investment banking and wealth management products. European clients, on the other hand, demand an ever more detailed range of products and services. Swiss private banks thus focus primarily on wealth and asset management, Luxembourg-based institutions on financial engineering, closely related to tax issues. However, the fact that Asian banks regard the areas of real estate, commodities and investment banking services as critical success factors, alongside wealth management and asset management, may mean that Swiss private banks in particular need to have a rethink if they want to attract larger numbers of Asian clients.
As indicated in the last KPMG private banking study (2010), much greater demands are being placed on CRMs. They are no longer expected to sell products, and clients today have a basic knowledge about performance and market developments. The expectations placed on CRMs are much higher: they need to be familiar with all the key regulatory changes – which includes having specialist knowledge of tax issues – and to be able to point out to clients the consequences of market developments on their financial and economic situation. In this respect, Swiss and other European private banks too are putting less and less emphasis on events, sponsorship and marketing publications in their client care activities, and much more on direct contact and target group-specific information.
In Asia, the technically-adept younger generation in particular makes great use of mobile and internet banking. Accordingly 54% of private banks see these technologies as an opportunity. In Europe too, their importance is constantly growing. Nevertheless, Swiss private banks are still focusing strongly on traditional client consultations, whether this be through fear of potential IT risks, or because they are shying away from the investments required. Mobile and internet banking does though provide substantially more flexibility in the client advisory process – geographically as well as in terms of time. Thus far, however, only 35% of Swiss private banks have considered new technologies as an opportunity. Yet these technologies will become pivotal when it comes to attracting a new generation of private banking clients – in Switzerland, but above all in the emerging markets of Asia.
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