Strategy

Medium-sized Swiss banks: when will the bad news stop?

A staff reporter, 21 August 2002

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More gloom has enveloped the Swiss private banking market, with More gloom has enveloped the Swiss private banking market, with Julius Baer ...

More gloom has enveloped the Swiss private banking market, with More gloom has enveloped the Swiss private banking market, with Julius Baer and Union Bancaire Privée announcing falling profits and job cuts. UBP came out first with its bad news, saying it would reduce its workforce by up to 25 per cent over the next year, cutting 350 of its 1,445 personnel.

Baer followed hard on the heels, reporting a 28 per cent drop in its interim profits for 2002 and an eleven per cent fall in private client assets under management. Both these banks manage serious money for their private clients, with Baer holding more than SFr61bn and UBP around SFr78bn. At this level, clients want access to a wide variety of products and superior returns. This is proving difficult, say analysts.

"Open financial architecture might sound good in principle. Some banks, particularly the medium-sized ones, are finding it difficult to adapt to the theory and clients are often confused over such things as pricing structure. The bigger banks still have the advantage of product choice and expertise," a Swiss banking analyst told Private Client Management.

Baer and its like might be suffering from an image problem, some analysts believe. As one put it: "they're neither big enough, nor small enough, to offer a unique customer experience." Unlike UBS and Credit Suisse, they do not have deep enough pockets to develop an onshore European business, as regulatory and further tax amnesties loom. They have to compete for a shrinking slice of the offshore private client pie.

Pressure to deliver absolute returns for many disgruntled clients against the background of weak equity markets is leading banks to diversify a larger part of their clients' portfolios into alternative investments, such as hedge funds. So far, this is proving successful for the likes of UBP, which recently announced a slight increase in half-year profits, partly as a result of its diversification into hedge funds. But how long can such a strategy work?

All these factors add up to further consolidation pressures in the sector, say analysts. Baer has said in the recent past it is looking to buy banks to grow its business, but how safe is it from being bought itself? Rumours about UBP's eventual fate are doing the rounds of Geneva's private banking circles. But as yet, these are little more than speculation.

Pictet & Cie is the exception

One bank that has escaped much of the negative news engulfing its local competitors has been the venerable Geneva bank, Pictet & Cie. The bank has been remarkably successful in avoiding the bad publicity some of its local competitors have had to deal with in recent months.

Although its partnership structure ensures a considerable amount of secrecy surrounding its performance, Pictet has been very successful in asset gathering for much of the year. In a recent survey by the Financial Times, the bank came in at number five in the top 20 cross-border fund managers in Europe, which ranked asset managers by estimated monthly sales (mutual funds) between January and May of this year. Pictet beat the likes of Morgan Stanley, Global Asset Management, Schroders, Goldman Sachs and HSBC.

So where does this leave the competition? For a start, Swiss private banks — especially the medium-sized ones — might like to examine the Pictet business model. Or, more realistically, look for a buyer or merger partner if they are seeking long-term survival.
announcing falling profits and job cuts. UBP came out first with its bad news, saying it would reduce its workforce by up to 25 per cent over the next year, cutting 350 of its 1,445 personnel.

Baer followed hard on the heels, reporting a 28 per cent drop in its interim profits for 2002 and an eleven per cent fall in private client assets under management. Both these banks manage serious money for their private clients, with Baer holding more than SFr61bn and UBP around SFr78bn. At this level, clients want access to a wide variety of products and superior returns. This is proving difficult, say analysts.

"Open financial architecture might sound good in principle. Some banks, particularly the medium-sized ones, are finding it difficult to adapt to the theory and clients are often confused over such things as pricing structure. The bigger banks still have the advantage of product choice and expertise," a Swiss banking analyst told Private Client Management.

Baer and its like might be suffering from an image problem, some analysts believe. As one put it: "they're neither big enough, nor small enough, to offer a unique customer experience." Unlike UBS and Credit Suisse, they do not have deep enough pockets to develop an onshore European business, as regulatory and further tax amnesties loom. They have to compete for a shrinking slice of the offshore private client pie.

Pressure to deliver absolute returns for many disgruntled clients against the background of weak equity markets is leading banks to diversify a larger part of their clients' portfolios into alternative investments, such as hedge funds. So far, this is proving successful for the likes of UBP, which recently announced a slight increase in half-year profits, partly as a result of its diversification into hedge funds. But how long can such a strategy work?

All these factors add up to further consolidation pressures in the sector, say analysts. Baer has said in the recent past it is looking to buy banks to grow its business, but how safe is it from being bought itself? Rumours about UBP's eventual fate are doing the rounds of Geneva's private banking circles. But as yet, these are little more than speculation.

Pictet & Cie is the exception

One bank that has escaped much of the negative news engulfing its local competitors has been the venerable Geneva bank, Pictet & Cie. The bank has been remarkably successful in avoiding the bad publicity some of its local competitors have had to deal with in recent months.

Although its partnership structure ensures a considerable amount of secrecy surrounding its performance, Pictet has been very successful in asset gathering for much of the year. In a recent survey by the Financial Times, the bank came in at number five in the top 20 cross-border fund managers in Europe, which ranked asset managers by estimated monthly sales (mutual funds) between January and May of this year. Pictet beat the likes of Morgan Stanley, Global Asset Management, Schroders, Goldman Sachs and HSBC.

So where does this leave the competition? For a start, Swiss private banks — especially the medium-sized ones — might like to examine the Pictet business model. Or, more realistically, look for a buyer or merger partner if they are seeking long-term survival.

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