These are the themes that will keep the financial industry occupied in 2023.

Will Credit Suisse Get its Act Together?

Crisis-ridden Credit Suisse is likely to remain one of the dominant topics in the Swiss financial industry in the new year. By the end of 2022, the Swiss bank will have tackled the first phase of its planned job cuts, which are to be completed by 2025. In addition to personnel, there is the separation of investment banking where there are still several unanswered questions. And above all,  will Credit Suisse manage to stem the outflow of assets under management or even reverse them?

The annual media conference and the fourth quarter results could already provide the first answers. But one thing is already certain: a big loss for 2022.

At its new corporate strategy presentation at the end of October, management made it clear 2023 will be another transitional year and it is too much to expect a turnaround. It remains to be seen whether progress will be made in the new year on one of the most difficult points in the implementation of the «New Credit Suisse»: the establishment of a new corporate culture.

Higher Capital Buffers

UBS and Credit Suisse are threatened with an increase in prescribed capital buffers by the end of the year. In the Financial Stability Board's (FSB) list of the 30 globally systemically important banks, the two big Swiss banks are in the highest category. If they are ranked there at the next classification in November 2023, they will need to build up additional buffers on top of the minimum standards. The FSB was created in the aftermath of the 2009 financial crisis and is tasked with contributing to global financial stability.

A New Stock Market Slump?

Swiss banks are firmly anchored in asset management. They accordingly felt the financial market turmoil of 2022 in their assets under management and fees acutely. Most analysts expect stock markets to continue to weaken in the coming year and companies to feel the global economic slowdown more clearly in their balance sheets as well. How would Swiss banks fare through another bear market?

The Swiss offshore location in particular is seen as vulnerable. In addition to the economy, geopolitical crises, rising interest rates, and external risks such as climate change continue to cause turmoil.

Private Equity in Choppy Waters

The lure of private equity was great in the era of cheap money, but times have changed. How long will high inflation persist and how long will central banks keep interest rates high to tame it is now the question. That will determine where the threshold will be for the risk-free return that can be earned by all with cash.

In times of asset distress, the long holding period of private equity investments was accepted because of the higher yield, but it is now becoming more difficult to generate alpha. Moreover, managers have mostly managed to ride out comparatively short downturns and lower valuations in the past. Previously when they had to account for the loss in value on their books, a recovery was already underway. But in prolonged periods of weakness, as is now expected, losses will also have to be reported on their balance sheets.

Asset Manager Movements

At the end of 2022, the deadline expired for the approximately 2,400 independent asset managers in Switzerland to submit a license application to the Swiss Financial Market Supervisory Authority (Finma). How many will ultimately be approved is an open question.

The license is seen as one of the driving forces behind the industry consolidation which continues unabated. One study expects up to 800 independent asset managers will disappear in Switzerland in the next two years.

Many small firms have sought not to license and will go out of business. Alternatively, they may change their business model to avoid the licensing requirement. Rising costs for risk and compliance and the administrative burden will encourage takeovers and mergers, it is expected.

Sustainable Investing Remains Trendy

Client money flowing into sustainability, climate, or impact funds has been on the rise for years. In Switzerland, self-regulation is the path when it comes to standards. It is unclear whether there will be any binding requirements coming from the political side.

However, European Union taxonomy is mandatory for all Swiss providers who want to sell their products in the EU, which sets the standard by default. On the topic of greenwashing, the Federal Council recently set up a working group, where representatives of banks, ministries, and supervisory authorities are to draw up proposals by the fall.

Real Estate and Interest Rates

For many Swiss banks, the mortgage business is their most important revenue stream. Higher interest rates and movements in the real estate market can have a major impact on results. So far, prices in Switzerland are not expected to collapse and demand remains high, especially in urban centers, because net immigration continues to be positive.

One thing can be said with certainty. It will become more expensive for tenants and owners. Mortgage rates are likely to rise with further SNB rate hikes, and with higher reference rates, the pass-through of inflation and rising utility costs will filter through to rents over the year.

Nevertheless, higher interest rates could lead to a slowdown in some real estate sectors. Fewer people can still afford to buy their own homes, and buying condominiums to rent out is hardly worthwhile as yields and valuations for rentals are likely to come under pressure.