The Swiss finance sector is increasingly losing its shine as even the most innovative financial institutions struggle to provide satisfactory investment returns to clients.
UBS disclosed its annual results last week including Credit Suisse, which it was forced to rescue at government prompting last March. In the same week, several other financial institutions disclosed 2023 figures.
The country's two largest cantonal banks (Zurich and Vaud) reported record results, but others put in a relatively poor showing. Two players once considered to be financial center leaders when it came to innovation, investment house Vontobel and derivatives boutique Leonteq, were clear disappointments. Julius Baer was also anything but impressive, particularly in the wake of the Signa debacle.
The picture we get from all this is a relatively successful but staid regional and state-backed domestic sector contrasted by a very challenged global banking segment, the part that is widely recognized internationally. And what is worrying about that is that it shows the sector overall has relatively limited investment competence and capabilities.
Only Cutting Matters
This is particularly glaring when it comes to Vontobel. For a while, it has no longer considered itself a bank but an investment house. Despite that, its asset management business has put in a poor showing for years now. Swiss financial newspaper «Finanz und Wirtschaft» put it concisely last week: «The only thing Vontobel can do is cut costs» – in other words, defensive measures are the only thing that can get it out of the doldrums.
It does not get any better for Leonteq, which reported a massive deterioration in performance after issuing what had been a third consecutive profit warning in December. Then comes Julius Baer. What had once been widely touted as a private banking pure play took its hand off the wheel when it came to the extensive private debt exposure towards Austrian entrepreneur René Benko's Signa business empire.
In all this, there is little sign of any widely touted investment competence in the industry, if there ever was one. Even UBS, which apart from providing what was a sensory overload of information related to the Credit Suisse integration, fell below expectations, particularly in its core business of wealth management for high-net-worth clients. Its burden of extremely high costs and the fact that the country's largest bank remains a relatively small player in the US contributed to this, something Andreas Venditti, a financial analyst at Vontobel, characterized as simply «disappointing».
Second Fiddle
This lack of investment expertise is attributable to several reasons. The use of technology has grown rapidly in recent years and it is something that has little to do with the advantages that Switzerland as a country can provide. Artificial intelligence only serves to make that worse. Clients are better informed and they seek investment opportunities outside traditional markets, including in private equity or through club deals, real estate, and other alternative investments.
Banks play a secondary role in those kinds of investments, as wealthy clients prefer dealing with specialized institutions. Another factor is that an increasing level of funds are flowing into digital assets outside of traditional finance. Moreover, specialized online providers exert significant pressure on margins, noticeably cutting into bank revenues.
Bottom Line
It is increasingly challenging to put a foot forward in the market just by using the label of Swiss banking, particularly for those institutions that do not focus on the more traditional interest rate business, classical private banking advisory, or being an online pure play. In an increasingly tech-driven and interconnected world dominated by artificial intelligence, the fundamental concept of Swiss banking has lost its relevance. The severe reputational crises, as we witnessed with Credit Suisse and Julius Baer just in the past twelve months, also didn't do much to help.
The bottom line is that there seems to be little left out there that can help distinguish the very fundamental Swiss trait, the country's original savoir-faire when it comes to handling money and assets. Instead, now might be an appropriate time to take stock of what Swiss Banking means and the qualities it should embody to ensure long-term success. Moreover, all stakeholders in the country's banking industry need to be sitting at the table when addressing that.
