A number of foreign banks
operating in Switzerland are being sold or merged as the rationale
for owning a bank in the Alpine nation is increasingly questioned.
PBI looks at whether it is still worth it.
Go deeper with GlobalData
Greater
regulation and pressure on offshore banking is making a Swiss
banking operation a luxury for many players now it is so tough to
hide client money.
Quietly, foreign banks are slipping
away from Switzerland, an exodus led by Italian institutions in the
Ticino region on the Swiss-Italian border. In the latest Swiss
banking pull-out, BCV, the Vaud cantonal bank, has repurchased
Banque Franck Galland, a company which it originally sold seven
years ago. The seller is Johnson Financial Group, a Wisconsin-based
institution that said it wanted to concentrate on its core US
market.
Galland will be merged with BCV’s
subsidiary, Piguet, and renamed Banque Piguet & Cie Galland. It
will have about CHF8bn ($8.4bn) assets under management.
Most exits have taken place in
Ticino, the canton where some 40 banks operate. In the past two
years, about eight banks have closed or been sold, half of them
Italian-owned.
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By GlobalDataItalian insurer Fondiaria-Spa
recently sold its Banca Gesfid private bank to Switzerland’s PKB
Privatbank for CHF134m. The banking unit manages about CHF1.4bn of
client assets.
Earlier this year, Sarasin sold a
subsidiary, Sarasin Colombo Gestioni Patrimoniali, back to its
Italian founders. Regulatory changes prompted Sarasin to change its
strategy with respect to Italian clients, a spokesman
explained.
Apart from the offshore clampdown,
what has hurt banks in the Italian-speaking Ticinio region is the
success of a series of tax amnesties by Italy, aimed at luring
flight money back home. The last amnesty, concluded in April last
year, led to the declaration of €97bn ($133bn) abroad – much of it
in Switzerland – and the repatriation of €39bn.
Regulation and costs stress
small players
The historic
business model of many banks – centred on tax arbitrage and the
murky offshore management of client funds – no longer has a strong
appeal after the intense pressure on Switzerland to join in the
international effort against evasion, say experts.
In addition, there is the tougher
competitive environment in Switzerland for client business, plus
the increased overheads coming from greater regulation both from
Swiss and global authorities.
“There will be further market
consolidation in Switzerland,” says Andreas Toggwyler, partner of
KPMG in Geneva. A number of banks are finding it too expensive to
remain independent because of margin requirements, regulatory
changes and back office system upgrades, he says.
“To absorb that as a small private
bank is not always easy,” he points out.
Consolidation
continues
Toggwyler’s consolidation
prediction is backed up by the findings in an Ernst & Young
Bank Barometer survey (see page 2). It found 74% of
private banks expected consolidation before the end of the
year.
“In the new environment, successful
banks will be those who have the significant resources needed to
upgrade their regulatory and compliance procedures, not only in
their Swiss operations but globally,” says Ray Soudah, founder of
the M&A boutique Millenium Associates.
“[Those banks] will need a network
to garner the collection and servicing of new assets without
breaching cross border regulations and without breaching national
onshore rules,” he adds.
As a consequence of the new
realities, those Swiss banks, locally or foreign-owned without the
resources or local and international supportive networks, will be
pressured to capitulate and sell out or merge with similar or
larger rivals, says Soudah.
In a Swiss survey,
PricewaterhouseCoopers estimated the extra burden of complying with
new banking and tax regulations would increase costs by 10 and
30%.
In addition, the expense of hiring
staff and setting up infrastructure abroad for onshore enterprises
is also prohibitive for all but the biggest banks.
Still, for some banks, Switzerland
retains its attractions. JP Morgan plans a big Swiss expansion,
which will involve adding more than 400 jobs. Last year, Brazil’s
Itaú set up a private bank in Switzerland.
For Millenium’s Soudah, Switzerland
has overcome the pressure on banking secrecy and the bad press
depicting it as a tax evasion stronghold.
“Switzerland has become the most
attractive international and safe financial centre for wealth
management on a global basis, for clients and service providers
alike,” he asserts. “This is due to the practical and widespread
adoption of improved governance and compliance practices in respect
of OECD and numerous bilateral international agreements.”
In addition, Swiss-based banks,
both foreign and Swiss-owned, have “embarked on procedures in
anticipation of the changed, more correct business models which
focus on security, investment management and client service rather
than banking secrecy and implicit tax evasion”.
Still, the outlook for smaller
banks remains clouded, experts acknowledge. A number of banks are
up for sale and the gossip in Geneva is that the Franck Galland
operation had been on the auction block for many months before a
buyer appeared.
For KMPG’s Toggwyler, smaller banks
will need to become very focused on a particular market or client
segment to survive.
“These smaller banks are able to remain in the game if they
operate in a specific niche,
for example, focusing on the ultra high net worth segment with
CHF50m plus,” he adds.
See also
SPBA: FATCA biggest worry for
Swiss
