4. Deceptive Volatility
But are clients really buying stocks and bonds? A lull in markets last year gave the wealthy little incentive to adapt their trading positions. The result? Dealers on trading floors twiddled their thumbs more than working their screens (or phones), and income from trading fell, as recent results have shown. That will certainly change dramatically in the first quarter: investors will expect a buoyant trading result from giants like Credit Suisse and UBS.
The problem? Trading isn't particularly predictable. A prolonged bear market without much volatility or fluctuation normally leads to clients sticking to the sidelines.
5. Dual Punch
Rising interest rates, of course, are not a great omen for stocks, while the era of ultra-low and negative benchmark rates has been rocket fuel. Swiss banks could find themselves int the double bind of persistently low interest rates, as stock markets spiral downward. This represents a dual hit to their profits: no relief from the battering of their interest income line, while commissions and fees drop due to falling stock prices.
6. Mandate-Based Pain
Swiss wealth managers have been trying to smooth their revenue for years by pushing discretionary mandates, which take the decision-making off clients, but also produce a steadier stream of income for banks. Besides the income, banks can more easily scale up investments, make use of efficiency, and simplify compliance work. Sounds great? Not so fast: in falling markets, banks bear full responsibility for how well – or poorly – the portfolios perform. Heated discussions with irritated clients are sure to follow.
