Tougher operating environment calls for a new business model
Rüschlikon is just a 20-minute boat ride from the centre of Zurich, yet a world away from the intense rivalry of the city’s financial powerhouses. Every autumn, the sleepy lakeside settlement hosts the Private Banking Summit, where delegates seek safeguards for their threatened industry.
“Swiss private banking is in turmoil, even though no Swiss bank went down as a result of the financial crisis,” Shelby du Pasquier of Geneva law firm Lenz & Staehelin told the most recent gathering.
The current state of affairs is the result of a combination of unfriendly economics, regulatory and political attacks from the US and EU, and consumer pressure for new types of banking.
The old Swiss offshore model – helping foreign clients structure their affairs to minimise taxes back home – is fading fast, but the future remains uncertain.
“Further changes looming in 2016 regarding tax compliance and the automatic exchange of information could signal a total transformation of the business models of Swiss private banks and the type of clientele they attract,” says Jürg Birri, partner at KPMG in Zurich.
“What if a private bank deals with 90 countries and only 30 of them enter automatic exchange agreements with Switzerland? Do we get rid of the clients in the 60 other markets,” Mr Burri asked at the summit. “It will mean banks must focus on their key markets.”
Luigi Pigorini, Citi Private Bank’s chief executive for Emea, predicts upheavals in the next two years. “At the moment, Switzerland is very attractive to us, and a lot of our clients from emerging markets like it,” he says.
“But Switzerland will go through a restructuring after the OECD common reporting standards in 2016. Many unprofitable banks, which competed on secrecy, are likely to fall by the wayside.”
Banking functions currently carried out in Switzerland could be exported to other centres, such as London, which “has always been very attractive and is becoming more so,” says Mr Pigorini.
Commentators agree that banks in Zurich and Geneva will see higher regulatory expenses in a lower-margin world than before 2008 along with anti-secrecy pressure from the US and EU. Many have local operations in Europe and Asia.
“They no longer rely on offshore private banking as their main agenda,” says Gerard Aquilina, independent family office adviser and private banking veteran. “They will have to focus on relationship excellence rather than secrecy and confidentiality.”
Servicing legitimate clients such as the millionaires of the Middle East, without local tax issues, will remain a priority. But in order to survive in this “multi-shore” world, Swiss banks must offer a better service than their rivals, says Ray Soudah, founder of strategic consultancy Millenium Associates.
“Clients of Swiss banks in Hong Kong, Dubai and Abu Dhabi are very upbeat,” says Mr Soudah. “But their bankers are all depressed, moaning about compliance, competition and regulation” and failing to cater to customers’ interests.
However, others say the banks will recover. “Swiss banks have brands that don’t disappear that easily,” says Ivan Sacks, who chairs private client law firm Withers.
“Switzerland may have taken a hit on its reputation but it will remain one of the world’s key financial centres.”
