Study: Swiss private banking sector to face consolidations

Oct 21, 2010, 13:40 GMT

Geneva - The Swiss private banking sector, especially smaller financial institutions, will face increasing pressures in the years ahead and consolidations can be expected, a study released Thursday showed.

PriceWaterhouseCoopers found a sharp drop in the last two years in the gross margin of the 111 banks surveyed for the report, Heading for New Horizons, largely owing to declines on global capital markets since the financial crisis hit.

Costs for running institutions will also rise in the years to come, in part owing to stricter regulatory regimes, leaving the larger banks with an advantage over their smaller rivals.

Boutique banks, sometimes with assets only worth some 2 billion dollars, also do not have the resources to branch out further into emerging markets, which would likely be the sources of new assets.

'We do not expect any noticeable improvement in inflows of net new money,' the report said of smaller banks.

Larger banks were seen to be aiming to increase their onshore presence.

Political tensions, including a global crackdown on the non- transparent offshore banking business, would likely also increase pressure on margins.

Switzerland and other countries with banking secrecy have been facing increasing pressures from global economic powers to sign new tax deals with greater transparency clauses, as part of a campaign against tax evasion and fraud.

'Swiss private banking is on the verge of a fundamental change,' PWC's Matthias Memminger wrote in the foreword to the report.

PWC expects increasing consolidation among small and medium-sized banks in the coming years.

However, dismal forecasts for the small banks have been made before and have yet to materialize, though PWC said the unique combination of existing trends was likely to mean the coming years would present a greater challenge for wealth managers.

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