Italy is a dream market for the Swiss financial services sector despite bumps in the road and a swathe of fines.
If you go to a private bank in Italy around the Ferragosto holiday, you’ll end up hammering fruitlessly on the door because all the financial advisors and customers seem to have headed for the beach. However, the quiet is deceptive because Swiss financial service providers have been beavering away in Italy to an extent not seen for a long time.
Switzerland’s largest insurer, Zurich, recently made what those familiar with the Italian market describe as a clever move when it acquired a network of more than 1,000 independent financial advisors from Deutsche Bank at the beginning of August with assets under management of 16.5 billion euros ($19.4 billion).
Test market for UBS
Swiss banks are on the march too. Zurich-based private bank EFG, which inherited a significant but difficult Italian business when it took over its Ticinese competitor BSI, reopened its Milan office in 2019 and has been expanding its activities there ever since. Credit Suisse increased its private banking team in Milan just last May and placed it under the leadership of ex-UBS man Gabriele D'Agosta.
UBS also has big plans for Italy. In the autumn, it wants to launch its hybrid asset management mandate My Way there and explicitly target affluent and high net-worth customers. After Germany, Italy is the second European market where the new digital tool is being deployed, indicating a clear commitment to the country
Amnesties and Information
While UBS is withdrawing from Austria, and scrutinizing the profitability of other European markets, there has not been a murmur about its Italian operations. In 2020, it contributed a good 19 million euros to UBS Europe's earnings. Swiss financial service providers’ recent interest in Italy comes as a surprise given their complicated history there.
In 2017, the Italian tax authorities collected 20 billion euros from tax evaders as part of an amnesty. In 2015, Italy also concluded a tax agreement with Switzerland. Since the beginning of 2018, Swiss banks have been providing data to Italy as part of the automatic exchange of customer information (AEOI).
Guardia di Finanza Still On Case
However, all this has not put an end to the tax dispute with the Swiss financial services sector from the Italian financial police’s perspective. Equipped with plenty of data on Swiss banks’ activities in Italy from previous amnesties, the Italian authorities came knocking on their door again in 2019. At the time, it was reported that more than ten banks were willing to cooperate with the Italians.
That same year, UBS paid around 111 million Swiss francs ($122 million) in a settlement with the authorities. In 2020, a money-laundering trial cost it another 1.5 million euros. Criminal investigations are ongoing into a raft of other cases. In March 2020, the Guardia di Finanza also went after Credit Suisse despite the fact that it had paid a total of 109.5 million euros in a settlement at the end of 2016.
Nation of Dream Customers
After those experiences, Italy should actually be a no-go area for Swiss banks. However, a source familiar with Italian banking said there are tangible reasons why they are still making an even greater effort to enter the market.
The source said this is simply because Italians are just dream customers. For example, the savings rate in Italy is high by European standards, and customers prefer financial products and mandates that yield a regular income for the banks. Furthermore, Italians are not very price-sensitive when it comes to financial services. They are more interested in other things, in particular a close relationship with an advisor. «Italian customers are very loyal,» the source said.
Fear Drives Inflows
Recent rich lists show the potential for private banking. According to Credit Suisse, Italy ranks 19th in the world in terms of average per capita wealth at $239,420 (Switzerland is in the first place). Last year, there were 187 new millionaires in Italy. The economic and political instability that has plagued Italy since the financial crisis has also not necessarily been to the disadvantage of Swiss financial-service providers.
As in the 1960s and 1970s, when Italians created backup funds in Switzerland out of fear of instability, inflation and a possible communist government, Swiss institutions repeatedly register inflows whenever the situation in Italy deteriorates. In 2018, when there were fears Italy might leave the EU, the influx of money hit the headlines.
Ups and Downs in Ticino
The beneficiary in these cases is usually the southern Swiss Canton of Ticino’s financial hub. However, there was a major outflow of Italian assets after the 2015 agreement. Sources there say business has since stabilized.
Of course, the attractiveness of Italian customers also has downsides for Swiss banking. The domestic banks are doggedly and successfully defending their territory against the «Svizzeri», the source familiar with the Italian market said. Customer loyalty makes life even more difficult for foreign competitors.
Growing through Networks
Companies such as Zurich are fortunate if they can buy themselves a network of established relationships. The so-called consulenti finanziari, independent asset managers with an exclusive banking or insurance connection, have seen the money flood in and have been able to expand their businesses in recent years.
«The greatest growth comes from this area,» the Italy expert said. Loyalty, fees, and millions in assets mean Italy really could be Swiss bankers’ best hope for «La Dolce Vita».
