UBS and Credit Suisse both have decided to serve their rich European clients together with the wealthy in emerging markets – saying farewell to «Swiss Banking» as we know it.
UBS didn't officially announced it – but «Reuters» was able to report about it on Tuesday afternoon: the merger of wealth management in the European and emerging markets. The new structure will allow Switzerland's largest bank to save several hundred million francs.
The new boss of the unit is Paul Raphael, so far in charge of the emerging markets segment at Wealth Management – and not Jakob Stott, his colleague at the unit in Europe. The new structure is said to become operational on July 1, 2016.
Following Rival's Lead
For once, UBS is following the lead of Credit Suisse (CS). The No. 2 in Switzerland rebuilt its private-banking business in October, when CEO Tidjane Thiam announced his new strategy. He introduced three units at the wealth management business – Switzerland, Asia and international wealth management. The latter division serves both the rich in Europe and in emerging markets – pretty much in line with what UBS is planning to do now. Head of the unit at CS: Iqbal Khan.
With both Swiss banking behemoths doing the same thing, the question arises, whether other Swiss institutes are well advised to follow suit. After all, Europe remains a crucial market for Swiss banking at large.
But with the end of banking secrecy money from European clients has left Switzerland. And this in turn forces the banks to adjust their business strategy.
Twist of Fate
Putting the U.K. and Ghana in the same pot may seem a little ironic. For decades, Europe was a treasure trove for Swiss banking – with customers in Germany and Italy queuing up to open accounts they believed were save from prying eyes of eager tax inspectors in their countries.
They weren't and the business became a little tricky with the tax dispute breaking out. The banks' margins came under pressure, making the readjustment of the strategy and optimization of structures a necessity.
In sharp contrast to the situation in Europe, Swiss banking in the emerging markets still relies on its traditional values – stability, experience and rule of law are important factors for clients in these regions. The tax issue is not (yet) as crucial as it in the old world. Thus, growth is at times substantial but comes in leaps and bounds and requires a lot of investment.
Dogs and Question Marks
UBS and CS hence apply the marketing tool of the BCG matrix – questions marks are entwined with dogs. Hoping that opposing characteristics level each other out. A courageous strategy for sure, because both segments are charged with risks – and because old problems may suddenly occur in new places.
The involvement of Swiss banks in the scandals surrounding Petrobras in Brazil and in 1MDB in Malaysia goes to show that putting together units carries the risk that entire divisions could suddenly be affected by problems in one local unit – the change of structures at CS and UBS is not a strategy that will spread out the risks.
