A quarter of Swiss private banks are no longer operating profitably, with smaller wealth managers facing a “critical” situation, a KPMG report showed.
Income declined about 25 percent at small and medium-sized banks as fees dropped amid lower customer activity and stricter regulation and compliance added to costs, according to the study of 103 firms in Switzerland. The number of banks in Switzerland dropped to 148 this year from 169 at the end of 2008 with closures increasing in the past two years, the report said.
“A few years ago banks achieved great results even without being great performers,” said Christian Hintermann of KPMG AG in Zurich in a phone interview. “Some of the smaller to medium- sized banks haven’t adapted.”
Banks with more than 25 billion francs ($27.5 billion) under management managed to boost revenue since 2006 and aren’t as acutely affected as smaller peers, KPMG said. The consultancy didn’t include Switzerland’s two largest banks, UBS and Credit Suisse Group AG, in the survey.
Swiss banks had an average return on equity of 2.4 percent, excluding one-off gains such as the release of hidden reserves and provisions. While some banks had a return on equity of more than 40 percent in 2006, only a few exceeded 12 percent in 2011.
Assets under management declined about 10 percent since 2006 as most banks avoided substantial outflows of client funds. Smaller firms were more likely to suffer withdrawals, the report said.
Private banks are struggling to earn sufficient fees from customers holding most of their money in cash amid volatile financial markets, according to Hintermann. Firms are also finding it harder to “push” their own products on clients, he said, adding it may be too late for some smaller companies to change their business models.
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