Postfinance is stuck in the mire: after an already difficult first quarter, things haven’t improved in the second. The release sent out by the company reads like one long cry for help.
One of the cardinal rules of corporate communications is to gloss over weaknesses, or even better, keeping them away from the public's eye. Postfinance, the banking division of the Swiss postal service did the exact opposite in its half-year report: «Postfinance with a substantially lower half-year result,» the company reported on Thursday in a rare act of self-flagellation.
The bank warned: «The negative development corresponds with expectations and will continue due to persistent low rates on money and capital markets.» Indeed, business doesn’t look too healthy at the moment. Profit dropped to 125 million Swiss francs ($127 million) in the first half, down from 372 million a year ago.
A Dead End
The decline in profit was heavily influenced by interest income, which was down 82 million francs year-on-year. The bank in 2017 also had divested two equity portfolios worth 109 million francs, which had boosted the numbers last year.
Commission income by contrast improved this year, increasing by 15 million. The company also attracted 3.6 billion francs in assets under management compared with 12 months ago.
Strategic Questions
The business model of Postfinance is a dead end, mainly because of negative interest rates, the charge by the central bank on sight deposits and the government’s ban on Postfinance to sell mortgages.
With profit about to decline and no outlook for an improvement in the medium term, the management of the company started to cut back on costs, with the recent announcement to shed 500 jobs the culmination point. Spending on personnel in the first half fell by 7 million francs and is likely to decline further.
A Political Statement
In its bid to circumvent the charge on sight deposits, Postfinance will demand more clients to pay for stashing their cash in its accounts and also said it was going to get tougher with its clients in this respect in future.
Of course, the cry for help by Postfinance is mainly aimed at the government and parliament. The company wants to sell mortgages to its huge customer base to even out the drop in income from interest-baring business. But while Bern has rejected the bid, arguing that the government-sponsored firm shouldn’t compete with the private sector, Postfinance eyed a partial privatization instead. The idea hasn’t however taken off so far, even if the figures seem to suggest that action needs to be taken sooner rather than later.
