Over half of private banks in Switzerland analysed by KPMG last year experienced net outflows of client cash. In a difficult period for finance, many could be forced to shut down or be bought out.
“Implement truly radical change, or continue to see performance deteriorate.” This was the message of a study releasedexternal link Thursday by audit group KPMG with the University of St. Gallen, evaluating the performance of 85 Swiss private banks.
Banks have cause for concern: having seen their numbers drop from 180 in 2005 to 114 today, last year cost-income ratios reached their highest levels, while regulatory clampdowns on tax evasion contributed to a widespread flight of clients.
Many banks will continue to exit the market. “I’m convinced that at least half will disappear,” KPMG manager Christian Hintermann told Reuters. “It’s ultimately a question of how long their owners want to carry these losses.”
Some of the reforms mentioned in the report included refocusing on core markets and clients; rediscovering the value of (wealthy) Swiss residents; and investing in digitisation and automation.
Perhaps surprisingly, it found, consolidations and takeovers slowed last year after a previous flurry. Out of 11 overall transactions in the country, just two cases of Swiss banks joining together were recorded.
For KPMG, this is explained by changes on both ends. On the demand side, big banks are simply less interested in taking over “small operations” in Switzerland which would require complicated restructuring.
On the supply side, the price ambitions of smaller banks are sometimes too high.
The study, which excluded the two largest outfits (UBS and Credit Suisse) found that between 10 and 15 of the banks showed potential for growth and significant new clients. A further 20 to 30 could find a foothold as niche operators targeting specific client groups.
The analysis comes not long after similar trends were reported for the overall banking sector, whose profits are down by 40% since 2015.
The total number of banks in Switzerland has shrunk from 413 in 1995 to 261 last year, driven by competition, regulation, technological development, and general global economic uncertainty.