A swath of Swiss wealth managers boasted a recovery of their margins last year. The pandemic is about to wipe some of that out.
No sooner had wealth managers in Switzerland finally reset after the global financial crisis of 2008/09 than the coronavirus crisis hit, as finews.com wrote in August. Private banks are in the eye of the storm – deceptively calm, but fearful of the fallout.
That's the conclusion from an analysis by PwC in Switzerland. Banks are suffering from vanishing margins – not a new phenomenon (they hit an all-time low in 2018) (see graph below).
Revenue Climb
While the situation improved slightly last year, market conditions won't change much for private banks. They will need to dramatically cut costs, as McKinsey's Jan Quensel told finews.com two months ago: «As assets under management corrected over the past months, costs have become more important. The costs at the front are a significant issue, having increased the most over the past three to four years with almost 3 percent.»
Shirking Spending Cuts
Quensel prescription is to keep cutting: «We believe in a front-to-back cut in costs along the main process lines of a bank, supported by a reduction in complexity, for instance in the areas of markets and products,» the McKinsey associate partner in Zurich said.
In short, a radical spending structure, but it is precisely small private banks which shirk this, according to PwC analysis (see graph below).
Specifically, it means that many Swiss private banks with less than $2 billion are spending an average 1.04 Swiss francs for every franc in revenue they take in. These small institutes, PwC concludes, lack the size to remain competitive.
By contrast, mid-sized and larger private banks managed to steady their cost-income ratios in recent years, albeit at a bloated 80 percent.
