Swiss private banks are preparing for an increase in acquisitions after declining profitability and provisions for a U.S. tax program prompted more than one-third to report a loss last year, according to a study by KPMG.
Nine deals involving about 125 billion Swiss francs ($137 billion) of client assets under management were struck in the first seven months of 2014, a volume of assets more than five times the amount traded in 2013, the accounting and advisory firm said in the e-mailed report today.
“The pace of M&A activities will probably continue to pick up since shareholders of private banks are increasingly asking themselves whether they really want to keep investing in their unprofitable banks,” KPMG said.
While Switzerland remains the world’s largest hub for offshore banking, with $2.3 trillion of cross-border assets in 2013, according to Boston Consulting Group, the number of Swiss private banks fell to 139 last year from 182 in 2005. Of the 94 banks surveyed by KPMG, 34 were loss-making in 2013 compared with 23 in 2012.
Concerns over the viability of Swiss offshore wealth units already prompted foreign owners such as Bank of America Corp., Lloyds Banking Group Plc and ABN Amro Group NV to pull out of private banking in the country.
Other foreign-owned Swiss banks followed suit this year. HSBC Holdings Plc sold about 12.5 billion francs, or 15 percent, of its Swiss private bank’s client assets to Liechtenstein’s LGT Group in June, and Morgan Stanley agreed in April to sell its Swiss bank to J. Safra Sarasin Holding AG.
Royal Bank of Scotland Group Plc is considering a sale of the Zurich-based international arm of its Coutts private bank, it said on Aug. 11. Geneva private bank and asset manager Banque Syz & Co. SA is looking to acquire businesses with between 1 billion francs and 10 billion francs of client assets and may be a “contender” for part of Coutts, co-founder Eric Syz said in an interview on Aug. 13.
London-based Standard Chartered Plc is seeking an alternative home for its remaining Geneva private banking customers as it winds down its Swiss wealth operation.
Return-on-equity, a key measure of profitability, dropped to 3.3 percent last year from 4 percent a year earlier, KPMG said in the study.
Moody’s Investors Service cut its outlook for the industry to negative from stable in a report on July 31 that described profitability and efficiency as “deteriorating.”
Clarity regarding the U.S. tax program is also expected to prompt an increase in deals during the second half of the year, KPMG said.
Banks are preparing settlements with the U.S. government to resolve accusations they helped Americans use Swiss accounts to cheat the Internal Revenue Service. About a dozen are trying to resolve criminal probes. Another 100 firms entered a disclosure program to avoid such investigations. They are expected to begin striking accords this year.
Banks recorded provisions of about 900 million francs for the disclosure program by the end of 2013, KPMG said.