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Swiss Bank Consolidation Chatter Shows How Scale Dominates Thinking

Tom Burroughes

29 May 2024

It appears that last year’s UBS-Credit Suisse merger, which left Switzerland with one universal bank last year, hasn’t ended the rumour mill about banks in the Alpine state looking to merge to achieve supposed benefits of scale.

In the past few days, there have been reports – citing unnamed sources – that Swiss private banks – both of which reported financial figures for the first four months of 2024 in the past few days (see here and here) – have been in merger discussions. 

Last week (24 May) Reuters reported, however, that talks had ceased.

This news service has asked both banks for comment – neither of them have commented.

Whatever the truths about the situation, suggestions that a merger was in the offing reflects how a desire for scale, regardless of whether this might concern the end-clients, is a big conversation point in the market today, Ray Soudah, founder and chairman of , a firm specialising in M&A and strategic advice for financial services, told this publication yesterday.

“Julius Baer, amongst several other sizeable Swiss private banks, have often in recent and previous times, entertained merger or takeover discussions with their intention of always being in  the `driver’s seat’. Such `my way or no way’ approaches always inevitably fail until a capitulation by one side occurs or a rescue is needed, no matter what investment bankers may counsel to get mandated,” Soudah said. “Obsession with size and buyers-imposed culture upon the weaker partner disregards client retention and care as seen in the recent mega case,” he said.

The backdrop for Swiss banks in recent years hasn’t been easy. Despite rate rises since the end of the pandemic, banking has suffered from more than a decade of negative official interest rates, among other factors. These squeezed margins and clients sought returns in riskier areas other than cash – not always a comfortable experience.

Although there has been an erosion in numbers, Switzerland still has a relatively large number of banks, which easily explains why the market is seen as ripe for consolidation. According to the Swiss Bankers Association, quoting figures from Boston Consulting Group, gross revenues for the entire industry in 2021 from foreign-domiciled customers stood at SFr20 billion ($21.9 billion), rising 1.1 per cent a year since 2016, which, the SBA said, is “relatively small” compared with the 3.3 per cent growth in assets. Margins have thus been eroded. For example, return on assets for cross-border business fell from 92.8 basis points to 83.4 between 2016 and 2021. BCG reckons this margin will fall further to 82.3 basis points by 2026. 

Results shine
Julius Baer, which after last March in a “shotgun wedding” was Switzerland’s second-largest banking group, gave markets some cheer in recent days with numbers showing no fresh credit losses, after its losses of 2023 jolted investors earlier this year. As for EFG, this listed firm, which like Julius Baer has operations in regions such as Asia, such talk is of a piece with the idea that banks are going through a period of consolidation. EFG’s results also appeared to be relatively robust.

EFG’s largest shareholder is the billionaire Latsis family, which made its fortune from the Greek shipping industry. In 2016, EFG wrapped up its acquisition of Switzerland’s BSI.

Some of the speculation might have been linked to the career of Boris Collardi, the former CEO of Julius Baer who, to the surprise of some, in 2018 joined venerable Swiss bank Pictet as one of its seven managing partners. He subsequently joined EFG’s board of directors in 2022. Collardi took a 3.6 per cent stake in the private bank, buying the shares from Dr Spiro J Latsis. In interviews last year, Collardi reportedly said that EFG was active in its hiring strategy at global level, and had recruited about 30 bankers in Asia, with a strategic focus on expanding its presence in the region. He acknowledged the potential for market consolidation, particularly following the merger of UBS and Credit Suisse.

Media reports noted that the banks had been in talks around the time Julius Baer ousted its chief executive officer Philipp Rickenbacher in February, after losses on loans to failed property firm Signa.

A question arises, however, whether such a merger would appeal to clients unsettled by some of the major structural shifts in the banking sector, particularly with the UBS-Credit Suisse combination. EFG, for example, emphasises its entrepreneurial culture, contrasting with the approach of very large, integrated banks. Julius Baer, a bank with a venerable history, is a pure-play private bank that has made a point of building a footprint in fast-growing markets such as Asia. EFG is also present in this market.

Switzerland, despite various competitive threats from centres such as Dubai and Singapore, remains the world’s pre-eminent offshore banking centre. It had foreign private assets of around SFr2.4 trillion and a global market share of around 22 per cent, according to the SBA. (Those figures predate the Swiss sanctions against designated Russians following the Russian invasion of Ukraine, a process that has reportedly seen an outflow of money to jurisdictions such as Dubai.)