Swiss private banks managed at last to lower their costs in 2017, and there were some prominent names to feature among those who also raised their profitability. Who are the fittest private banks?
Private banks in Switzerland are becoming more cost efficient, according to a study (in German) by the Zurich consultants IFBC. While the results of this analysis have also been confirmed elsewhere, the IFBC study has also highlighted some «key performance indicators» for important and relevant measuring tools.
These include: The operative efficiency, or the business success per employee, as well as the cost-income ratio. Thus the average among the 34 Swiss and Liechtensteiner private banks investigated rose by 25,000 Swiss francs to 72,000 francs -an increase attributable largely to a reduced workforce and an improved commission and services business.
Staff Earning More for the Bank
Progress on improving the cost-income ratio has been less spectacular, falling by 1.4 percentage points to a still high 82.8 percent. The key for operative efficiency is the profitability in the commissions and services businesses. The average employee in private banking generates 262,000 francs per year, up slightly from 258,000 in 2016.
This average however is less relevant since the success rate in commissions and services per employee is fairly broad, ranging from 124,000 francs to 495,000 francs, a level reached by Pictet in Geneva.
Cost-Income Ratio
New Money Flows Broadly Negative
So far so good. A further performance measurement in private banking is the inflow of new monies. In this respect 2017 was a good year for private banks, thanks to the market’s performance.
However on a performance-adjusted basis, the IFBC date paints a different picture: the new money growth slipped into negative territory, measuring minus 0.3 percent last year, although this was 1.1 percentage point better than in 2016. Margins also improved slightly, lying 1 basis point above previous-year levels.
Caught In a Vicious Circle
What the IFBC study, which has been conducted since 2011, shows is that the gap between the best and worst performers is widening. Weaker banks are caught in a vicious circle: they are unable to attract enough new monies to cover their capital costs.
Against a background of accelerating consolidation in the banking sector, this means those private banks who aren’t fit will be either sold or liquidated.
