Switzerland’s heavily saturated banking market has meant getting a solid footing domestically is a major challenge. The competition comes not just from local banks, but from foreign players who have bought numerous Swiss banks to enter into the market. The use of mergers and acquisitions (M&A) has become a staple of the business model, as banks try to combat fledging AuM levels and shifting business models.
Julius Baer is one of the bigger players who have been especially busy on this front, and offers good examples of both local and foreign acquisitions. Through their acquisition of Merrill Lynch’s International Wealth Management (IWM) unit the bank posted a 16% rise in AuM for the first four months of 2013, 78% of the rise was put down to initial integration of the business. Julius Baer have also seen strong returns from the 30% acquisition of Brazilian wealth managers GPS, as well as a partnership with Bank of China and acquisition of ING Bank Switzerland in 2010. Most recently, they have bought a 20% stake in the Italian investment management firm Kairos.
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In May, Lloyds agreed to sell its international private banking business to Union Bancaire Privée (UBP) and this month Portugal’s Banco Espirito Santo was reported to make a bid to buy Swiss private bank BSI.
Ray Soudah, co-founder of Millennium Associates, a global M&A and corporate finance adviser, believes indecision is currently hampering M&A in Switzerland.
"Whilst there is a great deal of talk, there will be a marked reduction in deals until the uncertainties surrounding the still substantially unresolved legacy of tax undeclared funds held by many Swiss private banks is settled," says Soudah.
Schilling believes the competitive domestic market is something not all banks will survive, especially with the bigger ones only looking at M&A options that would increase their AuM significantly.
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By GlobalData"The very small ones have the problem that a significant part of their clientele has untaxed money, so these banks are not that easy to sell anymore and some have gone into a liquidation process," says Schilling.
The competitiveness of the local domestic market has increased dramatically as more banks try and secure Swiss clients.
"The larger players have the advantage, except for the ultra high net worth clients who can be a segment well serviced by niche players," says Soudah.
"Most Swiss private banks have suddenly decided to focus more efforts towards capturing resident clientele, meaning a zero sum game in the market as a whole as the growth in wealth creation domestically is limited. Fierce competition is expected to arise and many smaller to medium sized private banks will not be able to achieve significant domestic penetration as compared to the larger well established domestic participants," says Soudah. Although the current mood may be inwardly focused, Switzerland is very much an offshore focused centre, Soudah points towards the tide changing once tax issues are resolved.
"Once the issues of tax legacies are settled, the next major issue facing Swiss private banks is their need to offer tax compliant products to their international clients, especially the lower sized clients. This will result in banks focussing on a limited number of international markets for which they can provide suitable "onshore type products offshore."
In the future, banks will be a lot more concentrated in their efforts, rather than spreading between multiple markets. Soudah sees some considerable selling off of certain business aspects, with the focus moving to Asia and emerging markets.
