A Harsh New World for Old Swiss Banks
Billionaire Hans Vontobel, the 86-year-old honorary chairman of the elite private bank his father founded, Vontobel Holding, still travels to his Zurich office by tram--proof, if any were needed, that old habits die hard in conservative Switzerland.
But in recent years, they have been dying nonetheless, as Switzerland's staid financial institutions struggle to meet the needs of increasingly demanding investors and global corporations. The result is that the banks and insurers that congregate around Zurich's Paradeplatz and Geneva's Rue du Rhône have been riven by conflicts between modernizers and traditionalists and disoriented by hurried expansion into new businesses and markets. They have also been thrown off balance by the turmoil that has gripped stock markets over the past two years.
Vontobel is a case in point. The 66-year-old bank, which made its name managing the fortunes of the superrich, is reeling: Investors are abandoning its old-style bankiers in favor of faster, more efficient money managers from global banks such as UBS and Morgan Stanley Dean Witter & Co., which may also offer higher returns. In late March, Vontobel slashed its dividend 25%, after net profits fell 63% on the back of a nearly 20% drop in assets under management. Problems erupted at Vontobel after it moved, in the late 1990s, into the then-booming business of investment banking and set up an online bank. The Internet venture was a disaster that cost the bank up to $150 million, while Vontobel's initial success on the underwriting front generated resentment among the group's old-school private bankers. Chief Executive Jorg Fischer and two senior colleagues who had spearheaded the changes were fired last spring, when the founding family, which still owns a controlling stake, sought to restore equilibrium. "We're only just now recovering our poise," says a senior insider.
Vontobel's difficulties are far from unique. Julius Bär, the country's largest private bank, shocked investors and clients alike on Feb. 27, when it said that last year's profits plunged 48% and assets under management shrank 11%. Zurich Financial Services, after enduring two management upheavals in 2001, announced on Mar. 21 that its $2.3 billion profit for 2000 had turned into a $387 million loss last year. As a result, Chairman and CEO Rolf Hüppi will give up the chief executive post. Swiss Life and Credit Suisse Group are also in the doldrums. Even the reputation of UBS, the country's banking flagship, has been damaged.
Many of these outfits responded to the dramatic changes in their industry by quickly expanding abroad or diversifying at home, and they promptly got into deep trouble. Swiss Life, for one, never managed to cross-sell products between its insurance business and Banca del Gottardo, the private bank it bought in 1999. That failure cost CEO Manfred Zobl his job on Feb. 27, and it may yet cost the company its independence. Other companies hired aggressive foreign executives to help them modernize--only to discover that they didn't fit in. "We're talking about global companies where English is the everyday language," says a Geneva-based banker. "Yet they still don't know how to deal with foreigners."
Analysts say Swiss financial companies are right to want to internationalize. They should also keep diversifying into new businesses. But until they learn to cope with the resulting challenges, even the most storied Swiss money manager will run into problems.
By David Fairlamb in Zurich