Many Swiss private banks are no longer operating profitably, leading to an accelerated decline of around 12% in the number of private banks, a study by KPMG and the University of Gallen revealed.
The "Performance of Swiss Private Banks in 2012" study, which was based on the annual reports of 103 private banks in Switzerland from 2006 to 2011 showed the number of Swiss private banks fell from 169 at the end of 2008 to 148 by the end of 2012. Credit Suisse and UBS were not included in the study.
The survey said the bulk of the closures occurred between 2010 and 2012, while practically no new banks were founded, said the report.
Merger and acquisitions activities were also relatively low in 2012, reported the study, part due to great uncertainties in the private banking sector.
Around 25% of the banks surveyed are no longer operating profitably, said the report. They are under pressure to shift their insufficient returns on equity, reduce their costs and report higher cost/income ratio.
According to the study, the general trend of "declining profits, particularly for smaller banks" is well established, but the financial impact of the "planned clean money strategy, the new tax treaties and the change in clients’ behaviour on Swiss private banks" has had a devastating impact.
The study revealed returns on equity have reached a non-sustainable level, with the just a few banks achieving a return on equity of over 12% in 2011, from more than 40% in 2006.
The industry’s median was a weak 3.8%.
Assets under management shift to larger banks
Despite relatively stable assets under management, which have only declined around 10% since 2006, smaller banks have suffered the bulk of the losses and reported considerable outflows of client money, the study said.
The report also revealed small banks were not successfully attracting client money, contrary to particularly successful banks. "Nearly all the banks with the worst results were small banks," said the study.