Private Swiss Banks Are Ripe For Picking

by Ulrika Lomas, Tax-News.com, Brussels

01 August 2001

Paradoxically, the asset boom of the last few years which has inflated the balance sheets, the customer rolls and the expenses of banks everywhere may lead to a breach in the wall of family ownership which has preserved intact the coterie of top private Swiss banks while in most other financial centres their peers have long since sold out to the bulge-bracket banks.

Last month the shares of Bank Sarasin, a 160-year-old Basle private bank, jumped more than 10 per cent on a rumour that UBS, the world's biggest private bank, was interested in acquiring it. This week the rumours re-surfaced and Sarasin, headed by Georg Krayer, chairman of the Swiss Bankers Association, once again publicly denied them.

Other banks have also been mentioned, including such as Zurich's Bank Vontobel and Geneva's Union Bancaire Privé. But why should such highly successful organisations be under pressure after reporting record results in the last two years?

The problem for the banks is that they have to try to compete with highly-capitalised international firms which can afford to ride the roller-coaster of the business cycle and which have very diversified public ownership which is inured to the need to dramatic swings in profits and staffing levels. Private owners are not comfortable with such things.

Last year the 17 Swiss private banks, whose partners have unlimited liability for the bank's losses, increased staff by 20 per cent on the back of a near 50 per cent jump in profits. Sarasin and Vontobel increased their staff by 25 per cent and 23 per cent respectively.

Quoted in the Financial Times, one rival private banker said: "There are several reasons why it would make sense for a Swiss private bank to sell out". The most pressing is that last year's boom conditions in Swiss private banking, when profits and share prices hit record levels, are unlikely to be repeated for years to come - if ever. And the pressure on the private banks' margins is coming at a time when UBS and Credit Suisse, the two biggest private banks, are starting to regain market share they lost to the smaller private banks over the last couple of years.

UBS, in particular, has argued that size will be a long-term competitive advantage in private banking. Christian Stark, of Cheuvreux, said: "In the past a private bank could prosper with SFr20bn to SFr30bn of assets under management. Now they need over SFr100bn ($58bn)".

So the likes of Vontobel, Sarasin, and UBP look vulnerable. They have grown too big to retain the advantages of a niche private banking boutique, yet can't hope to compete globally with the big boys. So don't expect those rumours to go away just yet!

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