Summary
The issue of the Swiss banks is not limited to the effect of the crisis and the consecutive destruction of wealth.
Their challenges are:
- increased sophistication of many banks around the world who are closer to customers and can provide similar services;
- the stigma attached to Swiss banks after the various "tax scandals" in the US, Germany.....
- they are loosing the Ultra High Networth customers (over Euros 30 Millions) who are going to new boutiques which are offering more tailor-made services
Analysis
It is clear that when you meet swiss bankers in Geneva and Zurich, you can perceive a lot of nervosity and anxiety.
Beside the wealth destruction faced by their customers over the past 2 years, they have also to cope with fights from the US and Europe against tax evasion (the UBS fiasco!).
These are the usually main explanations for the temptations from many swiss banks to go down market to continue to open new accounts, keep their teams busy and reach their revenue targets.
However these elements while valid are not to my feeling the main challenges faced by the Swiss Banks.
1) Over the past decade the Swiss Banks have led the charge in a "commoditization" of wealth management with the view of getting constantly bigger (and not better). While clearly a strategy followed by CS and UBS, the other swiss banks (at their own scale) followed: Julius Baer, Vontobel, Lombard Odier, Pictet, Rotschild.....
The risk of "commoditization" is two fold:
- the image of "exclusivity" is getting more blur with typical "retail banks" ; these retail banks, all over the world, are entering aggressivally into the space, are getting more sophisticated ....and take market share due to their proximity to customers.
- while getting bigger the swiss private banks had to industrialize their processes and their product offering; the customers are facing bankers who have less latitude in providing advice and products; the customers don't have anymore tailor made offerings.
2) The competition is now worldwide; the new wealth are developing in Asia, Latin America, Eastern Europe and Africa. Same wise the local banks are getting more sophisticated and are going upstream (for example several Brazilian Banks -Itau, Safra, Bradesco...-are offering more and more sophisticated products to their HNW customers); why should you give your money to a swiss bank if your local bank can provide you similar services? New major financial centers are developing for the HNW customers outside Europe (Singapore, HK, Montevideo, Miami, Dallas...).
3) the fight against tax evasion is now followed harshly by most of the large economies not only in the US and Europe but also in Brazil, Japan, China, India, Russia...... Computarization and international cooperation is making the "tax evaders life" more and more difficult...This is even more true that the Swiss Government (pushed by the large swiss corporates -Nestle, Roche, Ciba.....- ) have accepted to make major dents into the famous bank secrecy act.
4) The Ultra High Net Worth customers are leaving their traditional swiss private banks: they could not get the tailor made services they were expecting, they received terrible advices stuffed by more and more toxic assets (structured derivative products; hedge funds of dodgy origin -the Madoff and Amaranth stories exposed many private banks to law suit due to their poor due diligence but they are also loosing customers "en masse").
New "boutiques" are opening created by entrepreneurs disappointed by their bankers. The customers with over Euros 30 Millions in financial assets want a) to preserve their capital, b) have access to private deals and c) more and more to be socially responsible. They can't get these basic services from the "industrialized private banks".
The banking landscape is consequently changing dramatically: convergence of the mass retail with the "low high net worth"; internationalization of the banking sophistication; big development of Ultra High Net Worth boutiques along side with the Family and Multi-Family Offices.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
