How Corona Helps Swiss Banks to Cut Costs

Swiss Banks Decide to Close Some Branches

Written by Peter Hody

Swiss banks will be concerned about the unknown consequences of the coronacrisis. But they may well use the lockdown for a major overhaul of their operations.

The discussions in Switzerland, Europe and the U.S. about how, when and how fast the lockdowns are going to be removed is getting more heated by the day. The consequences of the pandemic for our economy and for Swiss banks, in particular, are sketchy at best.

The top management at Swiss banks is however also thinking about the opportunities the crisis is presenting them with. They are intrinsically linked to the changes that the way we are going about our daily work is undergoing during the pandemic.

Fast-Forward to the Future

Changes have been ongoing for quite some time, but corona has a fast-forward effect on banking and other financial-services firms: remote working, digital onboarding and customer identification, video-conferencing, online-advise, decentralized teamwork. «Online first» works. And more than that.

«In some ways, you can create something that's actually more efficient and better than what was there before,» said Microsoft-founder Bill Gates in a Linkedin-Podcast recently.

Obvious Cuts

Efficiency is something that Swiss banks and other companies in the market will not want to miss out on. It is too blatant a chance: corona is opening a wide field for permanent cost cuts.

This isn't about the personnel cuts – they will follow in any case. The scale of job cuts is far from a foregone conclusion and so far an unknown quantity, much like the drop in revenue of banks and defaults. The more obvious options available to the industry are branches, office space and business trips. Here are some thoughts on likely measures:

1. Temporary Closure Become Permanent

There are no complete figures available for how many branches of Swiss banks are in a temporary corona-shutdown. Zuercher Kantonalbank, which is mainly active in densely populated regions, has closed more than 50 branches for the time being – only 13 have been kept open. UBS, Credit Suisse and Raiffeisen were less rigorous in their approach. UBS closed down about a third of the branches.

A sober appreciation of the facts reveals that corona has simply accelerated a trend: away from the classic retail banking toward so-called multi-channel banking. Banks are arguing with a change in clients' habits and increasingly digital needs. And the other side of the coin are the considerable savings they can achieve with such measures.

We believe that the reduction in the number of branches will receive a jolt and many of the temporary closures will become permanent.

2. Reduction of Office Space

(Picture: Screenshot WDR)

Office space is another major component of banking's permanent costs. Rent, maintenance, furniture and IT for each and every member of staff. Bankers have used a fraction of all the space and infrastructure available to them over the past five weeks. Now, companies are reducing the amount of space made available, with several wealth managers starting out.

Not a new idea of course – UBS, Swiss Re and Zurich have been working on their concepts of «workplaces of the future» or «thin desks» for years. Basically, the concept entails a reduction of the number of work stations available – one work station for 1.2 members of staff for instance. The implementation of the strategy has led to double-digit cost savings. Corona shows how much more can be done.

We believe that the virtual desk has passed the test during corona that banks and finance firms will cut their office space by a fourth.

3. Videoconferencing to Replace Business Trips

Business trips are no major cost factor for Swiss domestic banks. But for companies active abroad, for the big banks and for insurers such as Zurich and Swiss Re, travel is a significant part of operating costs. An example: UBS in 2019 counted 450 million kilometers of air travel. The costs will have reached about 70 million francs – according to an estimate by «Business Travel News» made for the year 2018.

Cutting down on air time is one of the goals of UBS (having already shaved off about 55 percent since 2007) – and a major bank such as UBS isn't doing this to simply improve its sustainability index. Corona has shown that videoconferencing can indeed easily replace business trips.