A recent report compiled by KPMG and the University of St Gallen highlighted the fact that the Swiss private banking sector had experienced relative stagnation over the period 2010-2016.
This contrasts with the experience of the UK wealth management sector which experienced significant growth over the same period in terms of revenues, client assets under management and profitability according to data compiled by Compeer, a London-based research and consultancy firm that focuses on the wealth management sector.
Although the Swiss private banking sector, or at least the sample of firms encapsulated within the KPMG and University of St Gallen study, remained profitable in aggregate between 2010-2016 both revenues and client assets under management grew very slowly.
Furthermore aggregate profits as well as margins declined over the period with the prospect of worse to follow.
Not only is the Swiss private banking sector just “treading water” contended the KPMG and University of St Gallen researchers but as many as 70 Swiss institutions could face extinction in the years ahead.
The only piece of good news is that Swiss private banking sector still enjoys bigger aggregate profit margins than constituents of the UK wealth management sector, notwithstanding their contrasting experiences over the period.
The 153 constituents of Compeer’s UK wealth management universe, i.e. private banks, private client investment management firms and full service private client stockbrokers, grew their operating revenues by £1.40 billion* from the £4.21 billion recorded in 2010 to £5.61 billion registered for 2016, a 33.40 percent increase.
Although operating expenses increased by £0.94 billion from £3.40 billion to £4.34 billion, or by 27.60 percent, this was still substantially below the rate of revenue growth.
This meant that aggregate profits increased by £465.83 million from £804.84 million to £1.27 billion, a 57.88 percent increase with pre-tax profit or operating margins increasing from the 19.14 percent registered for 2010 to the 22.65 percent recorded for 2016.
Client assets under management between 2010 and 2016 increased from £432 billion to £665 billion, a 53.93 percent increase.
The 85 Swiss private banks analysed by the KPMG and University of St Gallen researchers grew operating revenues by CHF766 million between 2010 and 2016 from CHF 12.13 billion to CHF 12.90 billion, an increase of 6.31 percent.
With operating expenses growing by CHF 1.09 billion or by 12.3 percent from CHF 8.82 billion to CHF 9.91 billion, this meant that aggregate profits fell. These amounted to CHF 2.99 billion in 2016, CHF 322 million lower than the CHF 3.31 billion recorded in 2010, a 9.74 percent reduction.
Operating profit or pre-tax margins fell from the 27.26 percent recorded in 2010 to 2016’s 23.14 percent. Nonetheless the latter metric is still more than the 22.65 percent aggregate margin recorded by the Compeer universe of UK wealth management firms.
Client assets under management grew by CHF 446 billion or by 3.75 percent over the period from the CHF 1,189 billion recorded in 2016 to the CHF 1,635 billion registered in 2016.
There are, however, a number of caveats that have to be in respect of these results. The first is that like is not necessarily being compared with like.
Quite apart from the fact that Compeer’s UK universe contains many more firms than the KPMG/University of St Gallen Swiss equivalent, the latter has two significant exclusions in the form of UBS and Credit Suisse.
Furthermore, it is not clear if the KPMG/University of St Gallen study includes the Swiss private partnership banks that changed their corporate structures during the period and, as such, released full accounts constructed according to International Financial Reporting Standards (IFRS).
As such the KPMG/University of St Gallen study could significantly understate the health of the Swiss private banking sector relative to UK wealth management sector for the Compeer universe has no significant exclusions.
The second is the relative size of the Swiss banking sector. Despite a much smaller universe containing “small” and medium-sized institutions” the Swiss private banking sector is still much bigger than its UK equivalent.
A third caveat is that although aggregate profitability improved in the UK over the period around 20 percent of the Compeer universe recorded losses in 2016, accordong to its most recent annual study of the UK wealth management sector.
*all data is rounded-up to two decimal places