Julius Baer's new boss is expected to lay out a blueprint for the wider Swiss private banking industry when he unveils his new deal for the wealth manager. finews.com lists the challenges.
1. Cost, the Persistent Problem – and Bonuses, a New Woe
Private banking with rich clients is lucrative. Nothing but a myth: the industry as a whole is struggling to contain costs that have risen as a consequence of the complexity in cross-border banking, and as private bankers continue to rake in big salaries despite a change economic environment. As margins are falling, the companies face atrocious cost-income ratios (see point 5).
Private banks will have to put their focus on identifying markets and customer segments that generate proper profits. The consequence: unprofitable relationship managers will have to go. Julius Baer CEO Philipp Rickenbacher (see picture below) is probably going to pave the way for the industry - on Monday he will present annual results. And the perennial cash-cow of private bankers – their bonus – faces an uncertain future. The personal assessment of performance with an adequate bonus attached is no longer in sync with the day and age when banking is a collaborative effort of teams pulled from various backgrounds.
2. The Merry-Go-Round Gathers Pace
With net new money dwindling to a trickle – feeble Julius Baer had net new money growth of less than its 4 to 6 percent target range in the first ten months of 2019 – banks are falling over each other to poach their best to generate growth. While the Julius Baer of former CEO Boris Collardi had been an aggressive poacher if there ever was one, it has turned into a target after his departure. Not least for Collardi’s new employer, Pictet.
Meanwhile, Julius Baer has turned the wheels again, but if the merry-go-round continues as it did, wages won’t fall anytime soon. A problem for Rickenbacher, who pledged to cut costs and improve efficiency at the client-facing front.
3. Swiss Banking Abroad: An Expensive Exercise
Julius Baer – which took a lead among rivals with its expansion bid abroad over the past decade – has stopped in its tracks. Today, it is more a question of focusing on a few markets. In Latin America, the process has all but been concluded. Meanwhile, it is looking into smaller bureaus such as Cairo, Beirut and Johannesburg, mulling whether to shutter or merely cut to size. Swiss private banks with an appetite for more foreign exposure will have to reconsider their penchant for expansion.
The fact is that organic growth abroad is a costly exercise that craves the long perspective and patience. Building through acquisition is the same (see point 4) and with additional risks attached. Private banking, which emphasizes the personal touch and advice, will only ever generate economies of scale from a very advanced degree of automation.
4. Acquisition – But Which Company to Choose?
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