The Americans are once again on the march, with a renewed sense of confidence, vigour and ideas defining the future of managing wealth for the next generation, as can be seen by the latest crop of winners in PWM’s Global Private Banking Awards for 2019.
The Swiss, on the other hand, are not doing themselves any favours in the latest round of global competition among the ‘Superbanks’, which began to emerge in 2015.
While the leading Swiss banks continue to compete in key categories, consultants across Europe despaired at the recent ‘Spygate’ scandal which has embroiled rival shops on Zurich’s Paradeplatz.
After vacating one of the top jobs at Credit Suisse for UBS, Iqbal Khan eventually confronted a private detective hired by his former employers to track his movements. Credit Suisse seemed to fear he would lure teams of relationship managers from his old firm. This incident was followed by the tragic suicide of an external security consultant, who worked for Credit Suisse.
On the surface, the case is symptomatic of the “revolving door” between two banks battling for the same staff, betraying a lack of imagination in recruitment.
But it also symbolises a deeper malaise. Zurich and Geneva veterans who thought they had successfully navigated the existential crisis in Swiss banking, settling large bills with US authorities, are faced with a new battle.
This time it is about costs and questions about whether the Swiss giants can remain viable global players. “Any idea that Swiss banks have emerged successfully from their existential crisis is questioned by the recent shenanigans at Credit Suisse,” reflects Amin Rajan, CEO of the Create research consultancy and one of our awards judges.
“Swiss banks are good at what they do, but I doubt whether many of them are businesses of enduring value – for their owners or their clients. I no longer hear ‘Swiss’ banks and ‘excellence’ used in the same sentence.”
Ask the man who negotiated the settlements of most Swiss banks with Washington and he will tell you they are still mired in a transformational phase, hampered by increasing costs, regulatory constraints and tougher competition from rival finance hubs.
“These factors have and will continue to contribute to a further consolidation of the Swiss banking system in the years to come,” warns Shelby du Pasquier, head of the banking and finance group at Geneva lawyers Lenz & Staehelin
So how will the Europeans fight back against the recent American surge in fortune and expertise? This is a tough challenge, but not an insurmountable one.
Many have suffered over the last decade from a host of compliance problems, recruitment difficulties and profitability challenges. But look at the likes of HSBC and Deutsche, now in a phase of serious restructuring. Not only do they share a strong underdog mentality and constantly benchmark themselves against the best players in the market, but they are once more committing themselves to private banking. It may be a matter of time before they return to their positions as leading players.
It may sound like a cliché, but the successful players of tomorrow have to put their clients at the heart of the business, not see them purely as a target sale for new-fangled products. This former strategy has already led to destroyed reputations after the global financial crisis. And these take years to recover, as they will from the Russian money laundering scandals which have decimated much of the Nordic private banking space.
Moreover, private banks, with a few exceptions, are not really changing fast enough and moving incrementally, against a backdrop of a world transforming at a much quicker pace.
To be successful, private banks must also develop more internal investment expertise – the focus of players such as Citi – to access direct deals, impact investment and philanthropic services important to the next generation of private clients. “Private banks are competing with single and multi-family offices where there is an extremely high touch service across all these aspects except maybe for digital, which I would rank lowest on the list of must-haves,” says Cara Williams, global head of wealth management at consultancy Mercer.
Swiss banks do however have their defenders. They will remain strong in the near future, believes Kai Upadek, head of Oliver Wyman’s global wealth management business. “You hardly see any ultra high net worth clients who do not have a minimum of one or two Swiss banks in their mix,” he reports, lamenting superior resources at the disposal of US players.
A more flexible approach is key to any fightback. One developing model is where banks concentrate on offering a deposit platform and related trading services to external asset managers (EAMs), which will be the main contact point for clients. “Pricing for this model will be extremely competitive and will push for the pooling between banks of certain administrative and support functions such as KYC,” says Mr du Pasquier.
This will be big business in Asia too, where leading Apac headhunter Simeon Fowler of Fowler Fox sees EAM desks as a “good way to add additional revenue streams” and keep major clients, who have been left in the lurch once their bankers have moved on. Swiss players including Julius Baer, EFG and UBP are all focusing on this new model.
But for the time being at least, the odds are once more stacked against the Swiss. “The US economy has turned into a gigantic money-making machine in this decade, generating huge wealth, which has been channeled into private banks,” believes Create’s Mr Rajan. “This has facilitated innovation and change on a scale which banks in other countries can only envy.”
Europe’s private banks need a “burning platform” to launch them into a more challenging position. Currently, much of the industry still does not have this in its sights.
