Financial market adapts to challenges

Nearly 30 per cent of the global offshore banking business is done in Switzerland Ex-press

Private banking still dominates the Swiss financial sector, but a study has revealed strong growth in independent niche enterprises in the past 20 years.

This content was published on April 24, 2008 - 17:59

The Swiss Financial Center Watch (SFCW) says banking and insurance has scaled back while specialist firms have expanded. The financial sector is more important to the economy than in the United States or Britain, it added.

Five years of research on the evolving nature of the Swiss financial market was presented in Zurich on Thursday.

The report concluded that only in Luxembourg and Liechtenstein does the financial sector contribute more value to the overall economy. Banking alone makes up 12.5 per cent of the gross domestic product in Switzerland compared with 6.7 per cent in Britain and 5.1 per cent in the US.

But it is the so-called special financial services area - independent asset managers, private equity groups and hedge funds – that has really taken off in recent years.

Between 1995 and 2005 the number of such enterprises grew from 56 per cent of the total number of financial firms in Switzerland to 70 per cent. At the same time, the number of bank branches fell from 3,993 to 3,631.

"The financial sector growth was exclusively in the unregulated and relatively unknown special financial services sector," report head Hans Geiger, a professor at Zurich University's Swiss Banking Institute, told swissinfo.

Losing ground?

However, Pius Fritschi, a partner at independent investment company Horizon 21, said more should be done to encourage the expanding market.

"Switzerland needs a whole package of measures to attract trading talent, build more infrastructure and provide specialist education in alternative investments," he told swissinfo.

Last September, leading figures in the Swiss financial sector produced a master plan aimed at restoring Switzerland's position as one of the world's top three financial centres. The authors of the report feared that Switzerland was losing ground to international competition.

But Geiger paints an altogether different picture, arguing that Switzerland has only slipped back in the stock and bond trading markets. In other areas, Switzerland has gained ground, according to his study.

"What did surprise us was that Switzerland is number three in the foreign exchange market, ahead of enormous countries such as Japan, Germany and France," he said.

Post-subprime regulation

Geiger added that the best way for the authorities to stimulate recovery from the US subprime mortgage crisis was to erase or reform stamp duty on financial transactions and to adopt a hands-off approach.

His comment comes amid growing international calls to impose state regulation on the banking sector that failed to properly assess the risk in the subprime mortgage debacle. Switzerland's largest bank, UBS, has lost some SFr37 billion ($35.8 billion) in the past few months.

"Apart from creating good regulatory and tax conditions and promoting education in universities, the state should keep their fingers out of the financial sector. The people in this sector can look out for themselves," Geiger said.

swissinfo, Matthew Allen in Zurich

SFCW findings

The SFCW report, Portrait of the Swiss Financial Market, was put together by Zurich University's Swiss Banking Institute and the Institute for Economic Research at the Federal Institute of Technology in Zurich.

Research was carried out between 2003 and 2007 in all fields of the financial sector.

It concluded that Switzerland has a 28% share of the global offshore banking business. Luxembourg and the Caribbean have the next largest share – 15%.

Switzerland has dropped from seventh to tenth place since 1990 in the international table of securities trading volumes. Its share of the bond trading market has halved in the same period.

Around a third ($200 billion) of the world's fund of hedge fund trades are transacted in Switzerland, but only 5% of the single hedge fund market value is located in the country.

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