Competition Hots Up In Swiss Private Banking Industry

by Carla Johnson, Investors Offshore.com

17 January 2005

Soaring regulatory costs combined with low interest rates are forcing Swiss private banks to compete ever more fiercely with one another for a slice of the wealth management market.

According to Reuters, the regulatory burden placed on financial institutions by anti money-laundering rules and EU tax initiatives has forced up the cost of compliance for Swiss banks to 9.8% of their total expenses.

By contrast, large institutions have found it much easier to swallow this burden. Compliance costs for banking firms such as UBS account for around 4.1% of expenses.

This is a situation that Niklaus Baumann, partner in Basel-based Baumann & Cie and president of the Swiss Private Bankers Association, warns is unsustainable.

"Our pain threshold has been breached," he told Reuters.

Baumann believes the current state of the private banking industry in Switzerland is ripe for a series of mergers and takeovers as firms continue to struggle following the global downturn, corporate scandals and general global insecurity.

Others in the industry also point to the low levels of interest rates as another cause for concern. When interest rates are low, the banks earn less from lending activity and therefore often have to find other, often riskier, sources of returns.

“In order to make this losing hand a winner, they have already increased, and will certainly increase again, their appetite for risk by increasing leverage," Nicolas Pictet, partner in Geneva-based Pictet & Cie noted.

"I'm worried that the wealth management industry will see margins erode in the coming years,” he added.

Recommended