Major changes at the heart of Zurich’s banking world are likely to have repercussions across the Swiss finance industry and beyond into Asia’s growth markets.
Recent announcements of restructuring from Swiss leaders Credit Suisse and UBS are being carefully watched by competitors, concerned about their place in the new order of wealth management.
Credit Suisse has combined investment banking in Switzerland with a newly-merged wealth and asset management unit to adapt to the “new regulatory reality”. This leaves two major divisions: an investment bank trading equities and fixed income; and a private bank, augmented by multi-asset funds and structured product manufacturing units.
The overhaul has been planned for the last 18 months, says Credit Suisse, to adapt to a fundamentally-changed operating environment.
The shake-up at neighbouring UBS started earlier and will be far more radical and brutal. The 64,000 payroll will be reduced by 16 per cent by 2015, with most of fixed income already disbanded.
Chief executive Sergio Ermotti and chairman Axel Weber stopped short of dismantling the entire investment bank, although it has been seriously slimmed down to focus on advisory, research, foreign exchange, precious metals and equities trading. The “pre-eminent wealth management business” has been pushed once again to the fore, says UBS.
It appears analysis behind the exit of the UBS investment banking businesses was completed under previous financial officer John Cryan, who left UBS in June 2011, with Mr Ermotti and Mr Weber under pressure from Swiss regulator Finma to execute the plan.
Both banks say they restructured to reach stricter capital requirements, in agreement with the regulator. But some Swiss watchers believe this is a smokescreen, hiding a reality of incompetent financial planning. “This is the result of UBS and Credit Suisse losing so much money in investment banking that they needed to restructure,” says Swiss M&A and strategic consultant Ray Soudah of MilleniumAssociates.
Analysts believe there are several factors at play. “The restructuring is a combination of general pressure from the regulator, combined with more specific pressure from investors, fed up with poor and volatile returns from investment banking,” says Adrian Darley, head of European equities at Ignis Asset Management. Both banks, he says, would argue wealth management has always been at the centre of their business. But this will be more evident in the future, particularly at UBS, the largest wealth management player outside the US.
Bank Vontobel’s equity research analyst Teresa Nielsen expects other European banks, such as Barclays, to face continued pressure to downsize investment banking. HSBC is reviewing its options.
Smaller Swiss banks are welcoming the developments and the emphasis on private banking, although greater resources will inevitably be pumped into the UBS and Credit Suisse operations.
“Focusing on areas of core expertise will allow banks to streamline their resources and consolidate their position,” says Vincent Duhamel, a partner with Lombard Odier, responsible for the Geneva bank’s Asia Pacific push. This international expansion is the way forward for big and mid-size private banks, believes Vontobel’s Ms Neilson, as the Swiss financial centre goes through consolidation.
It will be difficult for other Europeans to compete with Swiss names with historical roots, like Julius Baer, Pictet and Lombard Odier, who maintain client confidence through their reputations, she says.
Jacques de Saussure, a long-standing partner at Pictet in Geneva, believes changes at UBS and Credit Suisse will benefit Swiss private banking as a whole. “These banks will become much more active in wealth management than in the last few years,” he says. “Having strong competitors is an asset.”
