The Swiss private banking sector saw a resurgence in fortunes last year but faces an uncertain future as the Covid-19 pandemic continues to play havoc with financial markets.
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Favourable market conditions in 2019 allowed the 84 banks surveyed by KPMG to grow client assets by 14%, according to a recently published report by the audit firm. Most of this growth was created by flourishing financial markets, with just 3% attributable to fresh deposits from the world’s wealthy.
Nevertheless, the annual “Clarity on Performance of Swiss Private Banks” report heralded the return of “net new assets” to Swiss coffers as a potential turning point in the sector’s fortunes. The ability to attract fresh inflows of money from around the world and to help clients grow their wealth are highlighted as key metrics in determining the health of private banks.
The situation so far this year is proving harder to judge. While the report suggests that some banks have leveraged the Swiss safe haven status to attract new funds, others are clearly struggling as clients bailed out of investments.
Julius Bär saw net new asset deposits of CHF5 billion in the first six months of 2020, but this was well down on the CHF6.2 billion recorded during the same period last year. Credit Suisse saw inflows drop by almost three-quarters while UBS saw little change.
KPMG predicts that private banks will struggle to attract new clients for the rest of the year as travel restrictions continue to hinder the all-important face-to-face meetings usually required to persuade people to open new accounts.
This could have a knock-on effect for revenues, which showed some promising signs of improvement in 2019. However, net profits continued to underwhelm as banks struggled to keep staffing, regulatory and IT costs under control.
Only one private bank ceased operations last year, bringing the number down to 101 from 163 in 2010. One more bank has disappeared already this year and two mergers are pending.
KPMG repeated its oft-quoted prophesy that more private banks will disappear from the landscape in the coming years, particularly smaller branches. Those that fail to adapt to the changes imposed by Covid-19 are most likely to fall, says the report. Its authors say as many as 30% of existing banks face such a risk.
