1. Long-term growth trend in client assets interrupted in 2015
2. CHF 88 billion net new money in 2015 is the lowest figure for five years – contribution to growth continues to fall
3. Almost 50% of the private banks are shrinking in terms of AuM or even showing net outflows
4. 75% of private banks are reporting lower revenues and/or gross margins
5. There are clear winners and losers – the "100 billion club" posts strong growth while medium-sized private banks as a segment are on the decline
6. Three strategic options for shaping a successful future
7. Headcount in the sector is decreasing, particularly in Switzerland, because for the most part staff is increasing abroad

Zurich, August 23, 2016

Times are changing. Prior to the start of the financial crisis, private banking in Switzerland and Liechtenstein was characterized by manageable regulation and virtually guaranteed annual growth with a high level of profitability. But times have changed over the past 10 years or so. The new Roland Berger study "Quo vadis, private bank?" looks in detail at the sector over a five-year period from 2011 to 2015, based on a comprehensive quantitative analysis of almost 60 of the largest private banks in Switzerland and Liechtenstein.

Long-term growth interrupted – net new money declining

"Overall the private banks in Switzerland and in Liechtenstein have shown a moderately positive development over the past five years. However, it is becoming increasingly difficult to achieve further growth and higher profits," says Robert Buess, Partner and private banking specialist at Roland Berger in Zurich. A slight decline of almost two percent in assets under management (AuM) in 2015 ­interrupted a trend that saw a continual increase in client assets between 2011 and 2014. A distinct dampening effect is also seen in net new money. At almost CHF 88 billion (down approx. 20% on 2011), 2015 showed the lowest figure for five years. In addition, the gross margin has shrunk in the meantime to 86 basis points. "75% of all private banks have lost revenue and/or gross margin in the past five years. The cost/income ratio remains 'stable' at around 79%, however, thanks to cost measures that have already been taken", explains Thomas Volland, Principal and private banking expert at Roland Berger Switzerland.

Swiss private banking is becoming a two-class system

So who are the winners and losers of the past five years? According to strategy consultants Roland Berger, both Swiss major banks continue to dominate the sector due to their sheer size – client assets and income statement – and global reach, although not in terms of growth, gross margin or efficiency. "The clear winners according to our quantitative analysis are the large private banks (AuM over CHF 100 billion), following significant acquisitions and strong organic growth. Fortunately, however, many of the small and smallest private banks are also proving to be robust and fast-growing," says Robert Buess. "The losers include the group of medium-sized private banks (AuM between CHF 25 and CHF 100 billion), particularly the private banking entities of the larger foreign banks," adds Buess. The problem of those "stuck in the middle" is clear from the study, although there are exceptions here, too. According to the strategy consultants, the size of a private bank is not a sine qua non for success. There are attractive and successful niches and suitable business models, and winners and losers in every size segment.

Focus on three strategic approaches

Without any active, conscious effort, future success will not be possible. Roland Berger has identified three strategic approaches open to private banks that have strong potential for achieving success in the future: First, "full steam ahead"; second "growth and consolidation at a high level" and third "focus and profitability". "Private banks need to redefine their business models and adapt their operating models to the new environment. In addition, it is particularly important that every bank rapidly finds its own answers to the issue of digitization, which has the potential to transform the sector in the long term. The digital divide between the poles of the Swiss private banks is considerable but there is significant potential for the private banks when it comes to appropriate, custom-made implementation of digitization," adds Volland.

Unique universe of Swiss private banks

No other countries in the world have such a high number of private banks – or banks that offer private banking – as Switzerland and Liechtenstein. At the same time, the sector is very heterogeneous and highly concentrated. Over 80 names have disappeared from the market in the past 10 years alone, some of them well known. Roland Berger experts predict that this concentration process will continue in the coming years. Overall, the sector employs around 10% fewer people than it did five years ago. Switzerland in particular has been affected by this trend, as many banks have created or are creating new positions primarily abroad.