Private banks look back on a good 2021 - but future difficult

2021 was a golden year for private banks in Switzerland. Assets under management increased by CHF 373 billion (12.9%) last year and now stand at CHF 3,263 billion. Net new assets of CHF 131 billion and performance of CHF 234 billion due to very positive equity and foreign exchange markets were key contributors to the growth. At 91% of banks, assets under management increased in 2021, with median growth reaching a record 13.7%. Gross profit rose to CHF5.8 billion in 2021 and revenues to CHF19.7 billion, according to a survey by auditing firm KPMG in collaboration with the University of St.Gallen. In this study, "Clarity on Swiss Private Banks," a total of 76 private banks operating in Switzerland and 11 in Liechtenstein were examined. The performance of these institutions and the most important industry trends were assessed.

Accentuation between "weak" and "strong" private banks increases

Despite the excellent results mentioned above, the gap between strong and weak private banks continues to widen. According to KPMG, the number of banks with operating losses rose sharply in the last three years despite a very positive environment. The median return on equity was 10.1% for strong banks and -2.0% for weak banks. "The strong banks are entering a clearly deteriorating macroeconomic environment very robustly. For the weak and medium-strong banks, the uncertain economic environment will be a major challenge, again leading to an accelerated decline in the number of private banks," adds Philipp Rickert, Head of Financial Services at KPMG Switzerland.

"Big8" will dominate the Swiss private banking landscape in the longer term

With the softening of banking secrecy as well as the increasing tax transparency due to the automatic exchange of information, many private banks have made strategic and operational improvements and invested in the repositioning of their business. With corresponding success: excluding UBS and Credit Suisse, a group of eight large Swiss private banks stands out the longer, accounting for almost 80% of assets under management of the analyzed banks and almost 90% of gross profit. "The high growth is the result of continued success in the market. Through better customer service and above-average performance, the "Big8″ have succeeded in retaining existing customers, increasing their 'share of wallet' and attracting new customers," explains Philipp Rickert. Crucially, success enables these banks to attract the best people and continuously invest in high-quality services, tailored products and digital initiatives. This enables the banks to stabilize their revenue margins in a highly competitive market.

The number of private banks in Switzerland fell from 99 at the end of 2020 to 92 in June 2022. The strong transaction momentum with ten M&A transactions in the first quarter of 2022 came to a halt due to the uncertainty caused by the war in Ukraine, rising inflation and interest rates, and fears of an impending recession.

Independent asset manager industry facing fundamental transformation

The Swiss independent asset management (IAM) sector has also been successful in recent years. 37 of the largest UVVs manage client assets of more than CHF 100 billion. This exceeds the combined client assets of CHF 69 billion of the 29 small private banks included here. But the UVV market is also in flux: Higher regulatory requirements, growing interest from foreign private equity investors, and an aging advisor base nearing retirement.

By the end of July 2022, only about 400 out of 2,100 UVVs had received a license from FINMA as a result of the Swiss Financial Institutions Act (FINIG). "Most independent asset managers are very small firms that are more likely to sell their business than apply for a license under the current time pressure. This could lead to a significant increase in M&A activity or to the disappearance of many small players," explains Christian Hintermann.

Headwinds in the coming years accelerate consolidation of private banks

After many years of rising valuations in the financial markets and ten years of negative interest rates, inflation is returning and interest rates are rising. The group of strong private banks is well positioned to face this against the clearly increasing headwinds triggered by an increasingly likely economic stagnation or even recession. However, the pressure to act on the weaker banks, which were able to profit during a record-long stock market boom, will increase markedly. KPMG Switzerland believes that this new reality will increase the need for consolidation among Switzerland's weaker private banks and that a new wave of market exits and greater concentration in the Swiss financial center will become apparent.

Source: KPMG