Swiss private banks withstood assaults on client secrecy by the U.S., France and Germany to attract more than 50 billion francs ($53 billion) of assets since the end of 2007.
While UBS AG customers withdrew 248 billion francs during the past two and a half years, those redemptions were exceeded by net flows into the nation’s 19 other biggest banks by client assets, according to data compiled by Bloomberg.
Credit Suisse Group AG, Pictet & Cie. and Bank Sarasin & Cie. won the most funds, bringing in almost 196 billion francs between them. Swiss firms opened branches elsewhere in Europe to keep clients who no longer want to bank in Switzerland, and invested in Asia, where the number of millionaires rose 26 percent last year.
“The Swiss private banks have been underrated by those who said they were on their last legs,” said Sebastian Dovey, a managing partner at Scorpio Partnership, a London-based consulting firm. “The reality shows that while they may have been badly bruised during the financial crisis, their businesses are relatively intact and are poised for growth.”
The industry was shaken on March 13, 2009, when Switzerland agreed to work with countries investigating tax evasion to avoid being blacklisted as a haven by the Organization for Economic Cooperation and Development. The Swiss have initialed or signed 28 tax treaties since then to implement international standards and help track down tax evaders. Only 16 percent of the 863 billion francs held in Swiss banks by European nationals were declared, according to estimates last year by Geneva-based broker Helvea.
Swiss banks hope to retain an element of secrecy by proposing a withholding tax on foreigners’ offshore accounts, where client identities would remain secret.
“Until the question surrounding banking secrecy has been solved, Switzerland will only grow moderately, especially with the western European neighbor states,” Walter Berchtold, head of Credit Suisse’s private banking unit, said during a Sept. 14 presentation in Zurich.
Credit Suisse, which holds about 100 billion francs in offshore assets from Germany, France, Italy and the U.K., is “more or less sticking” to a 2009 target of attracting 175 billion francs to 225 billion francs of net inflows by the end of 2012, Berchtold said.
The Zurich-based bank, Switzerland’s second largest after UBS, received almost 125 billion francs since the end of 2007, according to Bloomberg data.
Compliance costs for Swiss banks, which manage an estimated 27 percent of the world’s offshore wealth, are increasing as European clients repatriate assets to their home countries, said Teresa Nielsen, an analyst at Vontobel Holding AG in Zurich.
“Europe has changed from an offshore to an onshore environment,” Nielsen said. “While assets across the industry are relatively stable, the impact is visible on gross margins” because of rising costs, she said.
Gross margins at Credit Suisse’s wealth management division fell 15 basis points to 120 basis points in the second quarter from a year earlier. A basis point is a hundredth of a percentage point.
“It gets more and more complicated, specifically in the cross-border business,” Rolf Boegli, Credit Suisse’s head of Swiss private banking, said last month. Higher compliance and information technology costs may drive consolidation in the industry and makes banks “mindful about the quality of assets” they acquire, he said.
The companies that have attracted the most client inflows have been hiring bankers from competitors, said Christian Stark, an analyst at Credit Agricole Cheuvreux in Zurich.
Sarasin gained three places in the Swiss rankings of asset managers since the end of 2007, while Geneva-based Union Bancaire Privée fell four slots, according to Bloomberg data. Basel-based Sarasin, which posted the biggest percentage gain in assets under management over the period, has said it plans to add 50 private bankers a year.
The top four positions by client assets remained unchanged at UBS, Credit Suisse, Pictet and London-based HSBC Holdings Plc. Julius Baer Group Ltd. leapfrogged Lombard Odier Darier Hentsch & Cie. into fifth place after acquiring ING Groep NV’s Geneva-based wealth business last year.
Zurich-based UBS has suffered client defections after reporting more than $57 billion of writedowns and losses from the credit crunch that was exacerbated by the collapse of investment bank Lehman Brothers Holdings Inc. in September 2008. UBS also has agreeed to pay $780 million to avoid prosecution for helping wealthy Americans evade taxes.
Chief Executive Officer Oswald Gruebel said in July that the bank was “upwardly confident” it can stop asset outflows this year. The end of the U.S. cross-border case will help UBS hire more client advisers after 1,149 departures in 2009, Juerg Zeltner, head of wealth management, said the same month.
“UBS will be out of the woods if they show positive new money in wealth management,” said Vontobel’s Nielsen. “Returning the bank to positive net new money is the last thing which Gruebel has to fulfill.”
The following table shows client assets managed by Swiss banks or Swiss-domiciled foreign institutions at the end of June, with the percentage change from the end of 2007 and total net new money over the two-and-a-half year period.
Figures for some wealth managers, including Pictet and UBP, include non-private banking assets. All figures are in billions of Swiss francs.
2010 2007 Bank AuM AuM % NNM Rank Rank Change 1 1 UBS 1610.0 -24.6 -247.9 2 2 Credit Suisse 925.6 -7.0 124.9 3 3 Pictet 252.9 -6.3 37.0(a) 4 4 HSBC 195.1 4.7 15.5 5 6 Julius Baer 163.0 4.3 25.6 6 5 Lombard Odier 150.0 -15.3 8.0(b) 7 8 Clariden Leu(c) 99.0 -23.3 -2.4 8 11 Sarasin 96.2 15.9 33.4 9 10 Rothschild 93.3 -7.0 15.2 10 9 EFG International 87.5 -6.9 24.5 11 7 UBP 71.9 -47.3 10.8 12 12 BCV 57.8 -10.1 n/a 13 15 Deutsche Bank 50.0(d) -9.9 3.0(a) 14 14 Credit Agricole 49.7 -12.2 0.9 15 13 RBS Coutts 48.3(d) -20.3 -4.0(a) 16 16 BNP Paribas 47.0 8.4 1.8 17 -- Zuercher KB(e) 34.4(d) n/a 1.0(a) 18 18 Vontobel 29.3 1.7 3.5 19 19 St Galler KB 28.5 11.6 3.9 20 17 Societe Generale 26.7(d) -11.9 1.3(a)
JPMorgan Chase & Co. and Lloyds Banking Group Plc declined to provide figures.
(a) Doesn’t provide semi-annual NNM (b) NNM for 2009 only (c) Owned by Credit Suisse (d) End-2009 AuM (e) Zuercher Kantonalbank started its private banking unit Oct. 1, 2008.