Swiss Bankers’ Millionaire Dreams Fade as Assets, Margins Drop

Swiss Bankers’ Millionaire Dreams Fade as Margins Drop
A visitor examines a Rolls Royce at the 75th International Car Salon in Geneva, Switzerland. Photographer: Adrian Moser/Bloomberg

When Werner Rueegg managed wealth for clients of Credit Suisse Group AG, Oswald Gruebel, who became chief executive officer at the Zurich-based bank, promised to make him rich.

“Ossie Gruebel told us: ‘To serve a millionaire, you have to be a millionaire and I promise you I will make you a millionaire,’” said Rueegg, 48, who has spent the last three years of a 28-year career at Bank Sarasin & Cie. AG.

Those days may be over with the average pay of Swiss private bankers declining more than 6 percent to 245,000 Swiss francs ($263,000) this year from 2008, according to data compiled by Boston Consulting Group.

The pay squeeze comes as profit margins for UBS AG, Credit Suisse and other Swiss banks decline in the wake of the financial crisis and as a crackdown on tax evasion pushes American and European clients to withdraw funds. Bonuses are under pressure as assets under management drop and some wealth managers are hiring staff to work on a commission-only basis.

“Compensation as a whole has taken a hit,” said Phil Haviland, a London-based recruiter specializing in the Swiss private-banking market. “It’s all about the net new assets that can be brought in and the revenue you can get from these.”

Swiss offshore assets have declined by about a quarter to 2 trillion francs since 2007, which is contributing to a drop in performance-related pay. Credit Suisse, the second-biggest Swiss wealth manager, reported an annualized gross margin -- the amount of revenue earned on assets under management -- of 114 basis points in the third quarter, down from 131 basis points in 2007. A basis point is one-hundredth of a percentage point.

Bonuses Slump

Private bankers are usually paid a base salary plus a bonus determined by a combination of the assets brought in from existing or new clients and investment returns that contribute to the firm’s revenue. In a good year, a bonus can double a relationship manager’s total compensation, according to Peter Zuercher, who runs a branch of Zurich-based Adecco SA, the world’s largest supplier of temporary workers.

Bonuses for Swiss private bankers slumped as much as 50 percent this year, said Stephan Surber, who recruits financial professionals for the Zurich unit of Michael Page International Plc. Surber expects further declines next year, adding that some banks have stopped paying a signing-on bonus for new managers.

Swiss banks may lose about 1.1 billion francs in annual revenue, or about 4 percent of the 2010 total, as clients repatriate 47 billion francs of assets before tax agreements with Germany and the U.K. come into force in 2013, according to a Nov. 29 study by Booz & Co. The Alpine nation reached accords with those countries this year to tax the capital gains and investment income earned by holders of undeclared bank accounts.

London Pressure

While Swiss banks struggle to contain costs as a stronger franc erodes earnings in other currencies, bankers in London’s financial districts expect bonuses to shrink by about a fifth from last year as the sovereign-debt crisis crimps revenue, according to a survey last month by recruitment firm Astbury Marsden.

For senior London bankers, the decline in bonuses, was partly countered by a 21 percent jump in base pay to 237,000 pounds ($367,540), Astbury Marsden said.

Some Swiss wealth managers are eliminating base salaries, which start at about 100,000 francs and can be three times that for senior staff, by hiring relationship managers who focus solely on developing new business.

Commission Only

“There have been cases where private bankers are offered consultancy roles on a commission-only basis,” said Gina Le Provost, a recruiter with AP Executive in Geneva.

The median wage in Switzerland was 78,600 francs in 2010, according to data compiled by the Swiss Federal Statistical Office. The country has the fourth-highest salaries in Europe behind Denmark, Norway and Luxembourg, the office said in a July 2011 report.

With wealth managers, including Credit Suisse and Julius Baer Group Ltd., cutting jobs as profits are squeezed and fees decline as clients trade less and shun riskier investments, the performance of private bankers is under scrutiny, said Peter Damisch of Boston Consulting Group in Zurich.

“Banks will be more selective regarding relationship manager hiring,” said Damisch. “More demanding clients, difficult market environments, the need for more complex and tailored solutions and regulatory changes raise the bar for relationship managers.”

‘Top Producers’

Most of Geneva’s banks and wealth managers expect profits to be lower than last year, according to an October report by the city’s financial industry lobby group.

While “top producers,” capable of working with the ultra-rich and hunting for new assets by targeting “mass affluent” clients, can still command good compensation, the environment is getting tougher, according to Maurice Zufferey, who heads the Swiss operations of recruiter Spencer Stuart in Zurich.

“Non-producers will not just be earning less,” Zufferey said. “They will not be in a job.”

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