- Record increase in assets under management of CHF 373 billion to a total of CHF 3'263 billion and strong profit growth. Main drivers were record-high net new money and very positive financial markets.
- Increased concentration among the Big 8 which, due to strong growth, represent 80 percent of all total assets under management held by banks in the study. Alongside UBS and Credit Suisse, the Big 8 will dominate the realm of Swiss private banking in the long term.
- Growing geopolitical and macroeconomic challenges and uncertainties are widening the gap between solidly positioned and weak private banks, accelerating this consolidation.
Private banks in Switzerland experienced a golden year in 2021. Assets under management rose CHF 373 billion (12.9 percent) last year to CHF 3.263 billion, with that growth largely attributable to CHF 131 billion in net new money and CHF 234 billion generated through extremely positive performance on stock and foreign exchange markets. Ninety-one percent of banks reported growth in assets under management in 2021, with median growth hitting a record of 13.7 percent. Gross profit increased to CHF 5.8 billion in 2021 and operating income rose to CHF 19.7 billion. "The figures are evidence that the Swiss wealth management business has overcome the biggest challenges and successfully defended its status as the leading global wealth management center," says Christian Hintermann, Partner Financial Services at KPMG Switzerland, who headed up the study.
Despite these outstanding results, the gap between strong and weak private banks continues to widen. Even in the extremely positive environment, the past three years have seen the number of banks with operating losses increase. The median return on equity came in at 10.1 percent for strong banks and -2.0 percent for weak banks. "The strong banks are entering a clearly deteriorating macroeconomic environment from a robust starting point. The uncertain economic environment will be enormously challenging for weak and moderately strong banks, and that will trigger another accelerated decline in the number of private banks," adds Philipp Rickert, Head of Financial Services at KPMG Switzerland.
Big 8 will dominate the Swiss private bank landscape in the longer term
With the dilution of banking secrecy and the tax transparency ushered in by the Automatic Exchange of Information, many private banks have implemented strategic and operational improvements and invested in repositioning their businesses. With success: excluding UBS and Credit Suisse, a group of eight large Swiss private banks has emerged over time that account for nearly 80 percent of assets under management among the banks included in the study and nearly 90 percent of gross profit.
"This high growth is the consequence of sustained market success. Better client service and above-average performance have enabled the Big 8 to retain existing clients, increase their share of wallet and gain new clients," explains Philipp Rickert. Crucially, this success is putting these banks in a position to attract the best people and invest continuously in high-quality services, tailored products and digital initiatives. That, in turn, allows banks to stabilize their income margins in a highly competitive market.
The number of private banks in Switzerland dropped from 99 at the end of 2020 to 92 in June 2022. Strong momentum in the M&A market, which featured ten transactions at the first three months 2022, stalled due to uncertainty arising from the war in Ukraine, rising inflation and interest rates as well as fears of a looming recession.
Independent asset manager sector on the verge of a fundamental transformation
Switzerland’s independent asset manager (IAM) sector has also been profitable in the past few years. More than CHF 100 billion in assets under management are managed by 37 of the largest IAMs; this exceeds the combined CHF 69 billion in client assets managed by the 29 small private banks included in this study. But the IAM market is also changing: greater regulatory requirements, growing interest from foreign private equity investors and an aging advisor base that is nearing retirement.
By the end of July 2022, only 400 of the 2,100 IAMs had been licensed by FINMA in compliance with the Swiss Financial Institutions Act (FinlA). "Most IAMs are very small firms that, under the current time pressure, may have to sell their business rather than apply for the license. This could lead to a significant rise in M&A activity or the disappearance of many small players," explains Christian Hintermann.
Outlook: headwind in the next few years will accelerate consolidation
After many years of increasing asset prices on the financial markets and ten years of negative interest rates, inflation is back and interest rates are rising. The group of strong private banks is well positioned to make a stand against the mounting headwind triggered by an increasingly likely economic stagnation or even recession. Weaker banks, which were able to profit during a record-long stock market boom, will be pressured to take action. KPMG Switzerland expects that this new reality will heighten the need for consolidation among Switzerland’s weaker private banks and that the Swiss financial center will see a new wave of market exits and greater consolidation.
In its annual study entitled "Clarity on Swiss Private Banks", KPMG and the University of St. Gallen (HSG) examined a total of 76 private banks in Switzerland and 11 in Liechtenstein to assess their performance and key trends in the industry.