Reviving the Swiss Boutique: The Comeback of Small Private Banks

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Until recently, small Swiss private banks appeared to be doomed. But within a few months, the situation has changed dramatically. They’re heading for record results, and takeover talk has faded. What happened?

For small Swiss private banks, 2023 has been an extremely successful year. Gross profits almost reached the level of last year, according to a mid-year analysis private bank study from KPMG made available to finews.com. The interest rate environment was a decisive factor, leading to a marked shift in the earnings structure of private banks away from the commission business and towards the interest business.

This is particularly evident among the small banks. Their commission business accounted for 58 percent of total income in 2021, which fell to 41 percent this year, whereas the share of interest income increased from 24 percent to 41 percent. This is reflected in the cost/income ratio (CIR), which improved 13.3 percentage points at the small banks, from a median of 78.6 percent to 65.3 percent.

Number of Swiss Private Banks by Size

M&A Activity Slump

By comparison, mid-sized private banks could only reduce their cost/income ratio by 7.4 percentage points to 74 percent. In contrast, the «Big 8»(1), which includes Julius Baer, Pictet, and Vontobel, could only reduce their cost/income ratio by 1.3 percentage points to 67.3 percent. The improved results of the small private banks led to a significant decline in M&A activity, KPMG’s other figures show.

With only two transactions through the first nine months of this year, excluding UBS’s acquisition of Credit Suisse, private bank mergers and acquisitions came to a virtual standstill compared to 15 last year. Reyl acquired Carnegie Fund Services, a Swiss fund representative, in June, and UBP acquired Angel Japan Asset Management with 1.1 billion Swiss francs of assets under management. The situation is expected to continue until early next year, according to Christian Hintermann, a banking specialist at KPMG Switzerland.

Record Results Expected for the «Small Ones»

A significant reason is that many private banks are trying to profit from the integration of Credit Suisse into UBS by hiring client advisors or even entire teams.

For the full year, KPMG expects record results, especially from small private banks, as they continue to benefit the most from the interest rate situation. Nevertheless, it shouldn’t be ignored that volatile financial markets, as has been the case in the second half of the year, will hurt the core business of assets under management and commission income, the analysis continues.

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Edmund Shing, PhD

Global Chief Investment Officer
BNP Paribas Wealth Management

Edmund has over 29 years of experience in financial markets in a wide variety of positions, ranging from proprietary trading to portfolio manager in a number of financial institutions in London and Paris.  He previously held the role of Global Head of Equity and Derivative Strategy at BNP Paribas in London from 2015 to 2020, and has been Chief Investment Officer at BNP Paribas Wealth Management since November 2020.

Edmund is responsible for piloting our investment strategy and will continues to rollout out recommendations and themes with actionable advice that brings our expertise to our clients and support to our client-facing teams.  In this time of change, his expertise in following and anticipating markets is a true value added for both our customers and those at Wealth Management who serve them.

Edmund has a PhD in Cognitive and Computing Science from the University of Birmingham in the United Kingdom, and has done advanced studies in Knowledge-Based Systems and in Experimental Psychology.  He is an EFFAS-certified financial analyst. He has also authored the book “The Idle Investor” published by Harriman House in 2015, proposing 3 simple investment strategies that take only a few minutes to execute per month.

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