Private banks eagerly poached willing Credit Suisse bankers after the government prompted UBS to rescue the collapsed institution early last year. But industry growth has since stalled, putting the recruits under enormous pressure.
EFG International will be talking about one of its largest hiring drives ever in its history on February 21. To wit, in the first ten months of 2023, it had hired 130 new client relationship officers. Analysts from the Zurich Cantonal Bank now see that number swelling up to 156 when they report full-year results.
One-third of the recruits are expected to be former Credit Suisse bankers. Although the conventional wisdom is that most would have left after UBS salvaged what had been Switzerland's second-largest bank, the truth is that the momentum had started earlier than that. As an example, EFG chairman Alexander Classen raised many eyebrows in May 2023 when he said there was only a month or so time left to hire Credit Suisse employees.
Window of Opportunity
More recently, the top EFG banker told finews.asia. «Our management team worked hard to get good people on board», he said about the extraordinary period after March, when the rescue was announced. Still, the bounty wasn't a free one. The same Zurich Cantonal Bank analysts expect that costs at EFG are going to rise by about 1 billion Swiss francs ($1.1 billion) as a result.
That sounds like an extravagantly high number but it is justified by the once-in-a-lifetime opportunity. Whether it ends up paying off, however, is a question that has to be answered another day. Chairman Classen has a very decided view of the situation though. For this year, he expects that half of all the net new money at EFG to come from the recruits.
Deadly Cocktail
In other words, a great deal of expectation is weighing on the poached Credit Suisse bankers. And that isn't only at EFG either. The same holds for other Swiss private banks that hired large numbers of staff from the now-collapsed institution, the most prominent of which are Julius Baer and Lombard Odier.
The pressure won't get any easier in the context of the weak growth rates that those banks have reported for 2023.
Volumes have been kept down by a deadly cocktail of a strong franc, outflows from securities-based products, and clients who have cut their Lombard lending positions. The Zurich-based pure play Julius Baer, whose net profit nearly halved in 2023 due to the 606 million franc writedown it needed to make related to outstanding private debt with the Signa conglomerate founded by Austrian investor René Benko, saw assets under management rise a meager 1 percent to 427 million francs.
Waiting for the Second Wave
The growth rate in net new money was 2.9 percent, not enough for an institution that wants to be managing 1 trillion francs in assets by 2030. A second wave of outflows as chairman Romeo Lacher said last May in an interview with finews.asia said the bank had seen some outflows but that the lion's share of individual customer securities portfolios and loans had not yet started to move.
Lombard Odier is another bank that is seeing subpar growth even though it has been raising attention by the number of management changes it has gone through in recent months.
Recruiting Despite Cuts
As senior managing partner Hubert Keller recently told finews.asia, the level of assets brought in by new clients was at record levels last year and at the upper end of the targeted private banking range of growth in net new money of between 3 and 5 percent. At the end of the year, total client assets were 296 billion francs, of which 103 billion were deposits, and 193 billion were classified as assets under management. Below the line, that was 1 billion more than it was a year earlier.
The strong franc ate much of the market performance last year and the inflow of net new money also was barely 1 billion francs.
Keller remained relatively relaxed about the situation. He indicated the institution had the privilege of being a privately held investment company able to act for the long term. In 2023, the Geneva-based bank hired 60 client advisors and a small proportion of them came from Credit Suisse. Julius Baer, by contrast, is making preparations to cut jobs after its deteriorating performance. Despite that, it wants to continue to hire client-facing staff this year.
Rule of Thumb
It usually takes newly employed client advisors two to three years to convince their old clients to switch banks. But there is also another general rule of thumb. Those that don't manage to do that in the first three months are probably going to be unsuccessful in the longer term.
If the year continues as it started, net new money growth is going to become even more important for private banks. The equities markets are in the throes of an interest rate inflection point and cash looks attractive in the context of securities products while the strong franc exerts more pressure than it did before. To turn things around, the new bankers, including those from Credit Suisse, are going to need superpowers.
Waning Patience
If not, their new bosses are likely to lose their patience. Klaus Biermann of Biermann Neff, a headhunting firm, is very familiar with the merry-go-round currently going on between the various banks, and he expects that very thing to happen. «It is to be expected some newcomers from the major banks won't reach the ambitious targets and will have moved on or moved out in two to three years,» the headhunter recently said in an interview.
