Swiss private banking long bemoaned its slow downfall, suffocating under thinning margins and sluggish client behavior. Now, the industry is gleaning hope from an unusual source: Donald Trump.
The election of Donald Trump as the 45th president of the United States has sparked a sigh of relief on financial markets: market augurs on both sides of the Atlantic have cited the Trump effect for lifting their forecasts, be it for stocks, bonds or commodities.
Switzerland's private banks are also quietly hopeful, after a rise in the U.S. dollar and what is expected to be the end of ultra-expansionary monetary policy in the U.S.
«These policy moves are a blessing for private banks, especially those with the bulk of client assets in dollars,» Union Bancaire Privee's Martin Moeller told «Bloomberg».
Can Swiss private banks breath a sigh of relief that seven lean years of revenue and margins tanking may be coming to an end?
Trump Turnaround?
Switzerland's clean money strategy, the end of its lucrative, traditional offshore model, rising regulatory costs, ultra-low and negative interest rates and client passivity have forced Swiss private banks into a renewed round of consolidation. One-third of the industry's more than 300 firms were forced to shut their doors as a result, and more are expected to follow suit.
Trump's election could signal a turnaround: rising interest rates in the U.S. could entice wealthy investors into trading again, which banks hope will underpin their transaction and fee revenue. A climb in interest rates would also bolster the U.S. dollar, which gives an instant boost to firms' assets under management. This would allow banks to lend more liberally to wealthy clients – one of the pillars of Credit Suisse's private banking growth strategy.
The vague hopes have already translated to a fillip for some Swiss private banks: shares in EFG International, which holds more than half its assets in U.S. dollar, has surged 23 percent since Trump's election in November, while UBS and Julius Baer have climbed 18 percent and 12 percent, respectively
Improving Cost-Income Ratio
Credit Suisse and UBS also have high U.S. dollar exposure, while Baer holds 44 percent of its client's assets in the U.S. currency. The Zurich-based private bank gleans almost half of its revenue in U.S. or Hong Kong dollars, but spends only 14 percent in those currencies. A dollar boost would favor Baer's cost-income ratio.
UBP's Moeller isn't the only banker who has spotted a shimmer of hope: Mike Clements, Bank Syz's head of equities, also expects less pressure on margins due to rising U.S. interest rates.
To be sure, hopes that the good times will roll again after seven years of cutting back are premature. Given the situation in wider Europe, euphoria is completely misplaced: interest rates in the eurozone – and in Switzerland – are set to remain at zero or in negative territory for several years out and growth prospects are far weaker than in the U.S. or Europe.
But the Trump effect on interest rates could spill over into how clients behave, says Lucy MacDonald, investment head of Allianz Global Investors.
«Wealth management looks interesting» if these clients begin courting risk with their assets again and plunge back into securities markets, she says.
