Fig.: Switzerland as a financial center is home to 56 fewer private banks than in 2010.
2017 started slowly with only three deals announced in the first half of the year. Activity then accelerated to a record of 16 deals over the course of the year – the highest in the period under analysis. Transactions abroad in particular reached a peak as banks were able to actively adjust their business portfolio and/or adapt it to their strategic objectives. Assets under management from mergers and acquisitions amounted to CHF 9 billion in 2017, which equates to 10% of the CHF 90 billion recorded the previous year.
Costs still out of control
The median gross profit margin rose by 21.4%. But while favorable financial markets had a significant, positive impact on income, the effects on the gross profit margin were limited due to costs continuing to increase at many banks.
Operating costs grew at almost the same rate as operating income due to an increase in the average number of full-time equivalents. Higher IT and communications expenses were responsible for the 6.6% increase in total general and administrative expenses during 2017. A large proportion of these expenses relate to major banking platform projects at two large banks.
More of the market-driven rise in income should have filtered straight down to the bottom line. Operating costs at many banks rose in line with operating income – a worrying sign that insufficient attention is being paid to cost control and opportunities are being missed to improve shareholder returns. If markets suffer a downturn, many private banks will find themselves back in trouble.
Although the operating expense margin continued to fall in 2017, the drop should have been more significant given the considerable increase in assets under management. Banks should have been more stringent with regard to cost management, taking the opportunity to improve profitability and better prepare for potentially less favorable future markets.
The costs per employee has not moved much over the past few years, with the median value for Swiss private banks remaining at around CHF 230,000 per employee. Costs per employee in Ticino are still by far the lowest at CHF 179,000.