Smaller rivals chase the big Swiss banks
The country’s mid-sized private banks challenge the dominance of their larger counterparts
Credit Suisse continues to be the star-performing wealth manager in Switzerland, but several mid-sized local competitors are challenging it. Acquisitions are expected to increase as the battle for distribution intensifies among the country’s mid-sized wealth managers.
Second-quarter results released last month by Credit Suisse show that its wealth management division negotiated the difficulties of the past 18 months better than many of its competitors.
Net new money flows – one of the most accurate indicators of the health of a wealth management business – at the Zurich-based bank grew by Sfr60bn (€39bn) since the beginning of 2008, with more than Sfr17bn accumulated in the difficult first six months of this year.
That compares favourably with its big rival UBS, which reported a net outflow of Sfr139bn from its global wealth management business during the same period. But the news from UBS is not all bad. Last week, the bank said in its second-quarter results that it saw inflows into its Asian and Swiss wealth businesses, although it gave no details.
Rather than UBS, Credit Suisse might be more concerned by the threat from mid-sized Swiss private banks that have proved resilient during the credit crisis. The two that stand out are Bank Sarasin and Bank Julius Baer, according to analysts.
Tobias Brütsch, a bank analyst at private bank Vontobel in Switzerland, said: “They have been the winners in the crisis. These banks have used their strong capital ratios and low credit risk to gain clients during the crisis.”
In the 18 months to the end of June, Sarasin and Julius Baer each brought in about Sfr19bn of net new money. Sarasin won some of its business as a result of being owned by a top-rated commercial bank – Rabobank of the Netherlands. But it still acts as an independent private bank.
Figures for money flows into the mid-sized Swiss partnership private banks – Lombard Odier and Pictet – are less up to date than their listed counterparts, because, being partnerships, they are not obliged to report these numbers.
Pictet has said it brought in Sfr17bn of net new assets last year. Lombard has not been as forthcoming, but anecdotal evidence suggests both banks have achieved positive inflows since the beginning of the year.
Graham Harvey, a director at London-based consultancy Scorpio Partnership, said: “There are certainly encouraging signs in the mid-sized wealth management market in Switzerland, but the real test will be second-half results.”
Harvey reckons some of the mid-sized Swiss private banks will be interested in making acquisitions in the next year as they battle for distribution. He said: “They will be looking to acquire, but from a measured point of view. There will be more focus on quality of assets and future distribution potential, not just consuming a static book of businesses. Mid-sized wealth managers will ideally be looking to buy smaller wealth managers.”
Zurich-based Vontobel’s acquisition of the Swiss private banking unit of Commerzbank, which brought in Sfr4.5bn of assets, could indicate the likely trend in acquisitions in the year ahead, according to Harvey.
All the Swiss banks will be anxious to grow their onshore wealth management business in Europe, as the crackdown on offshore centres such as Switzerland means more money from Europe’s wealthy stays onshore.
This could also determine acquisition activity, say analysts. Brütsch said: “Julius Baer and Sarasin will want to build their onshore businesses in Europe. Both have already done this with some success such as Julius Baer buying an Italian wealth business earlier this year and both have developed their business in Germany.”
But not all of the mid-sized Swiss private banks will be looking to expand. EFG International and Union Bancaire Privée might be content with consolidation.
Brütsch said: “EFG International probably doesn’t have the capital to acquire right now.” He pointed to the Zurich-based bank’s weak share price, which is down by more than 20% since the beginning of the year, and more than 60% since its peak in mid-2007.
Lonnie Howell, EFG International’s chief executive, admitted that his bank had had a difficult first half. But he added: “Our capacity for growth remains intact, and EFG International remains well placed to take advantage of improvement in conditions and sentiment.”
Last week, Geneva-based UBP said that in its private client business it grew net new money by Sfr4bn in the first half of the year, but this was after an outflow of about Sfr20bn from its alternative investment products during the same period.
Guy de Picciotto, the bank’s chief executive, said a year ago that it might be time for an acquisition. But the bank’s exposure to the Bernard Madoff scandal, which cost it at least $700m, is likely to put off any such moves – at least in the short term.
A spokesman for the bank said: “UBP has strong liquidity and cash, and is analysing some acquisition targets in a very broad way. It is therefore too early to talk about it.”
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