Postfinance remains under pressure: Chief Executive Hansruedi Koeng told his staff to brace themselves for challenging times.

The business of Postfinance, the financial services arm of Swiss Post, is under pressure and operating profit (EBIT) won’t exceed 200 to 250 million Swiss francs ($200-250 million) in 2019, Hansruedi Koeng told members of staff in a letter sent on Tuesday, which was made available to finews.com. Koeng said the result was respectable but far from the profit levels reached in earlier years.

In 2018, Postfinance reported operating profit of 229 million francs, down from 543 million in 2017. Negative interest and ultra-low bond yields combined to squeeze the profitability of the bank.

Regulator Demand

The decline in profit has put the company under pressure, because Swiss Post relies on the financial arm to generate a sufficient return on capital and because Postfinance needs money to follow through on its digital powerhouse strategy. Neither Swiss Post nor the government, which owns the company, will provide the funding for such innovation.

A further negative factor was a demand from the regulator, which said that Postfinance wasn’t adequately capitalized going forward, given the size of the company and its relevance for the economy at large, according to Koeng. The bank wasn’t however capable of raising sufficient capital should it be asked to do so by the regulator, Koeng told his employees in the letter. He added that he remained in touch with the regulator and the government regarding this issue.

In the Hands of Others

Postfinance recently launched a bid to get a license to sell mortgages as it plans to counter the squeeze in margins in other fields of its business. The government will look into the demand from Postfinance in March 2020 and decide whether it wants to allow the move. Koeng said it was proof that the company didn’t control its fate entirely and was in the hands of others.

And still he demands to keep going, to continue with the powerhouse strategy and to make sure that Postfinance lived up to its potential.

Koeng didn’t announce any further job cuts in the letter. The company had made such a move in mid-2018 as the scale of the difficulties became apparent.