Swiss Private Bankers Face Pay Squeeze as Firms Cut CostsGiles Broom
Switzerland’s private banks are under pressure to cut pay and jobs as the surge in the country’s currency raises costs for companies already hurt by dwindling assets.
“Private banks in Switzerland have breached the pain threshold,” said Lorne Baring, managing director of B Capital SA, a Geneva-based asset manager. “They will have to cut salaries and infrastructure costs in order to remain competitive.”
Julius Baer Group Ltd., the nation’s third-largest wealth manager, will outline how it’s addressing personnel costs and other expenses at an earnings presentation on Monday in Zurich. UBS Group AG, the world’s biggest wealth manager, Credit Suisse Group AG, and Vontobel Holding AG report full-year results in the second week of February.
The franc’s surge is “a wake-up call” forcing banks to accelerate cost cuts, Patrick Odier, president of the Swiss Bankers Association, said on Jan. 24 in an interview. Banks are reassessing budgets and targets as dwindling foreign currency revenue from international customers pushes costs higher. The country is the largest offshore refuge for wealthy individuals and families, according to Boston Consulting Group.
Union Bancaire Privee, the Geneva-based wealth manager founded by Edgar de Picciotto, said on Jan. 27 the central bank’s recent decisions will have an “adverse impact” on foreign currency income this year and the firm plans to “factor in some adjustments” to its forecast for 2015.
“The appreciation of the franc has immediately damaged the performance and profitability of banks and their client relationship managers,” said Christian Hintermann, a partner at accounting and advisory firm KPMG AG in Zurich. “It puts pressure on banks to cut salaries and bonuses.”
While closely held private banks probably won’t talk openly about savings plans, publicly traded companies may divulge measures to ease investor concerns.
UBS shares declined 7.5 percent since Jan. 14, the day before the SNB move, while Credit Suisse dropped 16 percent. Julius Baer plunged 17 percent.
Julius Baer said on Jan. 19 it plans to “rapidly implement appropriate measures” to protect profitability from the effects of the stronger franc. Jan Vonder Muehll, a spokesman for the Zurich-based bank, declined to comment further before Monday’s announcements.
Credit Suisse on Jan. 19 said currency volatility may hurt profit. The stronger franc may push down UBS’s profit 14 percent, Barclays Plc analysts said in a note to clients after the SNB decision.
UBS will have to control costs “even more efficiently,” UBS Chairman Axel Weber said Thursday.
Swiss private bankers serving millionaire clients typically earn 160,000 francs ($174,000) a year plus a bonus of 20 to 40 percent of base salary, according to Stephan Surber, a recruitment consultant with Page Executive in Zurich. Bankers to the ultra-wealthy -- those with more than $50 million to invest -- can command at least 250,000 francs a year, plus bonus, Surber said.
Salaries are already under pressure as constraints stemming from rules to improve tax compliance and client scrutiny are creating fewer roles for a surplus of candidates, according to Surber.
Banks are also seeking to limit the hit from the SNB’s 0.75 percent charge on cash deposits by passing the cost on to clients through higher commissions.
Both of Switzerland’s largest lenders are among a growing number of banks passing on the cost of negative rates. Lombard, Odier SCA, Geneva’s oldest bank, has said clients with unmanaged accounts of more than 100,000 francs will pay new charges, in addition to the firm’s standard custody fees. Zuercher Kantonalbank is also passing on the cost to some customers.
The SNB’s policy is aimed at discouraging foreign banks from amassing more Swiss currency, traditionally an attractive store of wealth in times of geopolitical and economic uncertainty. Deutsche Bank AG’s Swiss unit has taken “appropriate measures to deal with the euro-franc situation,” Tanja Kocher, a spokeswoman for the unit, said in response to questions from Bloomberg News.
EFG International AG, the private bank controlled by Spiro Latsis and his family, reports on Feb. 25.
Banks are evaluating which staff are non-essential costs, and which client-facing employees will help generate growth in future, according to Martin Schilling, a director at PricewaterhouseCoopers AG in Zurich.
“Companies that want to keep growing will need to dig deep to keep rewarding their top private bankers with attractive salaries,” he said.