Swiss business enjoys bonanza year

Many companies on the Swiss stock exchange are in a strong position Keystone

The top Swiss companies raked in a record SFr64.5 billion in profits ($49 billion) in 2005 with the banking giants smashing expectations to lead the way.

This content was published on December 23, 2005 - 17:33

Switzerland's stock market reacted very positively to the solid performance. The Swiss Market Index of blue chip companies shot up by 30 per cent on 2004.

While the profits of the top companies beat the previous record of SFr57.4 billion in 2000, the bourse in Zurich looks set for the fourth best finish to the year since 1970.

Analysts expect further growth in the next two years as world economies continue to recover, but some experts warn of a correction in the second half of 2006 as interest rate rises take effect.

The results of a Bank Vontobel survey, compiled for the Tages-Anzeiger newspaper, show the top 150 businesses in Switzerland enjoyed a bumper year, taking in SFr8.1 billion more profits than in 2004.

Positive trends

"This is not just a result of the growth in the Swiss economy, but also positive trends in the United States, China, Japan and Europe," Vontobel chief analyst Thomas Pfyl told swissinfo.

"Most of the companies surveyed have restructured in the past three or four years, putting them in a stronger position. They have focused on their main business and divested non-strategic business."

Many companies have also changed their strategy from buying back shares in 2004 to investing in new ventures this year, according to Pfyl.

"Last year companies used their profits to pay off debts and buy back shares," he said. "This year we have seen a shift, with more than SFr20 billion being used to buy new companies."

Switzerland's banking giants have surpassed predictions by posting huge profits this year. For example, UBS announced net income of SFr2.77 billion in the third quarter of 2005, up 71 per cent on the corresponding period last year.

The net profit at rival Credit Suisse for the same period rose 42 per cent to SFr1.92 billion.

Share price surge

Share prices have also surged with the market set to close at its best level since 1997, outstripping the Dow Jones.

"Share prices in Switzerland were undervalued at the beginning of the year compared with the US," said Pfyl. "The dollar also became stronger and the US experienced higher interest rates."

Some analysts believe a growing trend of rising interest rates around the globe will slow growth in Switzerland in the second half of 2006.

"We predict a little burst at the start of 2006 led by consumers as unemployment rates drop," said Bank Leu analyst Anne Bourgois.

"Many Swiss businesses are well positioned in eastern Europe and Asia which will reap dividends for the next few years.

"However we do predict a correction in the second half of the year as rising interest rates slow down growth."

Vontobel paints a more optimistic near future, however, predicting profits of SFr72.9 billion in 2006, rising to SFr80.5 billion the following year.

"Global economies are expected to expand further. Interest rates will be slightly higher, but not strong enough to have a major impact," said Pfyl.

swissinfo, Matthew Allen in Zurich

Key facts

The Swiss National Bank raised its benchmark interest rate by 0.25% in December, the first rise since September 2004. The band is now 0.5-1.5%.
Switzerland's State Secretariat for Economic Affairs (Seco) recently upgraded its prediction for Swiss economic growth from 1.3% to 1.7% in 2005.
The Swiss Business Federation, economiesuisse, expects the economy to grow by between 1.5-2% in 2006.

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