Favorable financial markets boosted Swiss private bank performances. Confidence grew further as a result of crisis management measures successfully introduced due to COVID-19. The industry has an opportunity to build on this momentum for change, to deliver the benefits to secure its survival.
As well as our own analysis of banks’ performances, we interviewed 27 C-level executives to understand how the Swiss private banking industry has dealt with the COVID-19 crisis, and whether it will emerge stronger. These executives, who were mainly CEOs, were generally positive about the future. They noted how quickly crisis management plans were implemented, and how any significant operational disruption was avoided. Also how the changes have begun to deliver benefits for both banks and their clients.
Of course, it helps that 2019 was dominated by favorable financial markets, as AuM (assets under management) at Swiss banks grew to record levels. Banks had also made a concerted effort to improve the generation of NNM (net new money), with the result that NNM increased by 3% last year to reach its highest point for a decade.
This combination of our annual analysis and feedback from CEOs leads me to make six observations about the current state of Swiss private banks:
Banks avoided disruption during the crisis
CEOs acknowledged that private banking was not very adversely affected by the COVID-19 crisis. Part of this is due to favorable financial markets improving banks’ performances, and part is thanks to the swift and decisive actions banks put in place as a response to the COVID-19 related lockdown. As a result, banks incurred very few losses on loans and managed to smoothly transition to home offices.
Digital transformation gains traction
Changes were generally introduced quickly and effectively, including measures such as process automation and digital client onboarding. Initial results suggest that the direct benefits range from more flexible working to greater efficiency and more intensive client communication that has enabled banks to increase their share of wallet. This is only the start of the journey, however.
Superior client returns build competitive advantage
It’s notable how banks that provided the highest returns on client assets were also the best at attracting new clients. This is no coincidence, as client returns have emerged as a key differentiator. Stark contrasts between the returns offered by different banks remain, and it is increasingly clear that higher returns and an ability to offer unique investment opportunities will further build competitive advantage.
AuM growth has become critical to success
Successful banks and those that perform poorly can often be distinguished by variations in growth rates. Banks are able to improve their cost-income ratios and RoEs by attracting new clients and delivering superior returns. In fact, our analysis of the past five years shows that a 10% rise in gross AuM translates into a bank improving its chances of survival by 6%.