Media Release: 10% of private banks didn't survive 2015 | KPMG | CH
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10 percent of private banks did not survive 2015

Media Release: 10% of private banks didn't survive 2015

2015 was a bleak year for Swiss private banks. Most banks posted further declines in their results. Overall they failed to generate any notable increase in net new money and return on equity decreased at two-thirds of banks. One in ten private banks was squeezed out of the Swiss market last year. Radical change is urgently needed in the industry to prevent the situation from escalating even further. These are the key findings of the latest joint study on private banking conducted by KPMG and the University of St. Gallen which assessed the performance of local private banks last year.


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KPMG Switzerland and the University of St. Gallen jointly reviewed the profitability and efficiency of 87 private banks in Switzerland. Compared to past years, the overall picture has become even cloudier. Efforts by numerous private banks to adapt their business and operating models to the new environment have proven insufficient.

According to Philipp Rickert, Head of Financial Services and Member of the Executive Committee of KPMG, the outlook for many banks remains bleak: “Transparency requirements, increasingly complex regulations, changing demands of a new generation of clients and harsh market conditions are proving toxic for a growing number of private banks.” It thus comes as no surprise that more and more banks are selling off their business activities and others are simply discontinuing their operations.

Rapid growth in the number of Weak Performers

“Sustainable improvement is impossible without radical change. Optimizing old business and operating models is no longer enough,” adds Christian Hintermann, Head of Advisory Financial Services at KPMG. “Growth is the only survival strategy. Yet before growth can come, a few fundamental changes have to be made first,” he goes on to say. Private banks have to completely rework their value propositions in order to offer their clients added value. Service offerings need to be adapted to meet changing client needs and also devised to be profitable. Sales effectiveness also needs to be boosted by upgrading front office capabilities and further developing the processes involved. Additionally, banks need to adopt a more proactive approach toward promoting industrialization and process automation, thus increasing their operational efficiency. This would put them in a better position to reduce their cost-income ratios.

This latest study classified banks into four clusters based on their performance. It excluded the immediate aftermath of the global financial crisis and instead focused on how banks have performed since 2010. The results illustrate how the gap between the strongest and weakest private banks continues to widen. More than one third of the banks examined fell into the Weak Performers cluster. Cause for concern is the fact that the cost-income ratios for this cluster rose by almost 10 percentage points last year alone and that more than half reported losses. Hintermann points out that “if Weak Performers continue to exit the market at the accelerated pace seen in 2015, the next two to three years could bring annual reductions of 10 percent per year.”

A positive outlook for around a quarter of private banks

The study also yielded some positive findings: The “Average Performers – Up” cluster has successfully been able to boost its return on equity every year since 2010, grow net revenue per FTE and improve cost-income ratios. Private banks in this category could emerge as the Strong Performers of tomorrow.

The key results of the KPMG study “Clarity on Performance of Swiss Private Banks”:

1. One in ten private banks has disappeared from the market within the space of one year

Last year KPMG had predicted that the number of banks would decline by 30 percent within just a few years. This prediction has proven true and could even be too conservative given the fact that one in ten private banks exited the Swiss market in 2015. Several foreign banks, like the Royal Bank of Canada or Coutts International, left the Swiss market while some of the Swiss private banks with the poorest performance (Weak Performers) closed their doors.

2015 brought 15 mergers and acquisitions involving Swiss private banks, the highest level seen since 2007. Asset deals dominated the landscape and accounted for around two thirds of all transactions; this reflects buyers' ongoing caution regarding legacy risks related to share deals.

2. Two-thirds of banks are confronted with declining returns on equity

Return on equity fell at two-thirds of banks last year, in some cases significantly. Weak Performers were hit particularly hard with return on equity falling to -0.9 percent in 2015. Of the 87 private banks involved in the study, just six were able to achieve continuous improvements in their return on equity over the past three years. Factors contributing to last year's developments included the strong Swiss franc, negative interest rates and continuing regulatory changes, namely the Automatic Exchange of Information and voluntary disclosure programs.

3. Practically no net new money

The negative market environment coupled with Swiss private banks' failure to generate net new money led to a CHF 100 billion decline in assets under management in 2015. Net new money was almost negligible, even among Strong Performers, while Weak Performers reported net outflows. Overall, net new money in 2015 came to CHF 4.3 billion, the lowest level since 2009.

The gap between Strong Performers and Weak Performers was particularly wide with net new money diverging by around 8 percentage points. While the former reported a 1.9 percent increase in net new money, Weak Performers saw a decline of 5.7 percent. Banks with an international presence (subsidiary or branch abroad) were in a better position to generate net new money.

4. In search of growth

With their sights set on synergies and new business, large private banks actively sought out growth opportunities both in Switzerland and abroad. The median return on equity of banks that made significant acquisitions between 2010 and 2014 (where individual transactions represented at least 10 percent of the acquirer's assets under management) rose by 2.8 percentage points during the two years following the acquisition (or one year for acquisitions completed in 2014). These deals also helped the banks in question reduce their cost-income ratios by 1.9 percentage points in 2015.

5. Considerable increase in cost-income ratios

Personnel costs accounted for 67.2 percent of operating costs last year. While acquisitions and liquidations led to fewer employees in the industry, median cost-income ratios increased by one percentage point at two-thirds of banks. Weak Performers were hit hardest: Their median cost-income ratios rose by a staggering 9.5 percentage points last year alone. Despite this, further investments are still needed. Too many private banks continue to work with old core banking systems. While these might be cheaper to operate, they are not flexible enough to meet clients' needs and successfully move into the digital banking business.

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© 2018 KPMG Holding AG is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.

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