Swiss private banks are increasingly open to relinquishing their independence, with more institutions willing to be acquired than ever before. Several key factors are driving this trend, with at least eight significant reasons behind it.
Today, there are about 100 private banks left in Switzerland. However, Martin Schilling, a banking expert at PwC Switzerland, predicts that this number will decrease by half over the next ten years, as he stated in a recent interview with finews.tv.
His prediction may come to fruition even sooner. Last week, a relatively low-profile event in Zurich's financial circles may serve as a catalyst for further developments in Swiss private banking. It shakes the very foundations of this secretive industry, and many signs suggest that a significant barrier has been broken. What’s it about?
An End to 75 Years of Legacy?
Zurich-based Vontobel announced last week that it is acquiring the client book of IHAG Private Bank (IHAG), a traditional Zurich institution. IHAG, founded by industrialist and arms manufacturer Emil Georg Bührle exactly 75 years ago, manages a modest 3 billion Swiss francs ($3.5 billion) in assets – a small figure compared to Vontobel’s 100 billion francs in private client assets.
However, this sale marks a break in the taboo within Swiss private banking, one that would have been unthinkable a decade ago: family-run financial institutions are giving up their independence, as seen four years ago with the Geneva-based Reyl Private Bank, now part of Italy’s Intesa Sanpaolo, and two years ago with competitor Gonet, which was acquired by the Jordanian Arab Bank (Switzerland). IHAG is expected to continue as a family office or investment management firm.
Sustainability Bank for Sale?
The intention to sell is not new, as the above examples illustrate. However, the willingness to sell — whether voluntary or not — has never been higher than it is now. For instance, the sale of Zurich-based Kaleido Private Bank has been circulating.
A few months ago, rumors surfaced that Globalance Bank, which focuses on sustainability, is also seeking a buyer. The future of Liechtenstein’s VP Bank remains uncertain, especially as the search for a new CEO continues.
The fact that once-prestigious private banks are now available on the market is due to several factors; here are the eight most significant:
1. Unsustainable Operating Costs
Running a bank today is expensive, with rising costs largely driven by increasingly strict regulations and requirements (think compliance), as well as the need for modern IT systems.
Smaller banks, especially those that haven’t modernized or consulted outsourcing partners, can hardly afford these expenses.
2. Lack of Interest in Digitalization
Many traditional private banks have management teams that show little ambition when it comes to embracing the latest digital trends.
Often, these are old-school bankers who either cannot or do not want to adapt to the technological shift. Their clients, who don't demand such changes, only reinforce this reluctance.
3. Aging Clientele
Many private banks struggle to attract younger clients, the so-called «Next Gen.» The potential unlocked by digitalization is unfamiliar to them.
Furthermore, the image of some private banks appears outdated and fails to meet the expectations of younger, affluent customers. Lavish lunches and dinners at paneled restaurants no longer impress today's millionaires and billionaires.
4. Eroding Product Knowledge
And what would they talk about at such gatherings anyway? Many private bankers today lack knowledge of new financial products and investment opportunities, especially in areas like crypto, private equity, or club deals.
While innovative banks like Zurich’s Maerki Baumann have gained recognition in the crypto space, others lacking this expertise are steadily losing relevance.
5. Blurry Profiles
It becomes clear that a bank without a clear profile faces increasing challenges.
Success is not necessarily tied to the size of a financial institution but rather to its raison d'être. The acquisition of Geneva’s Gonet by an Arab institution two years ago was likely related to its unclear purpose.
6. Less Demand for Offshore Services in Europe
For decades, many Swiss private banks served as reliable institutions for foreign clients who wanted to hide their wealth offshore.
While this was not illegal from a Swiss perspective, it was a profitable business model that made many banks, as private banking legend Hans J. Bär put it in his memoir «Seid umschlungen, Millionen», «fat and impotent».
With the abolition of banking secrecy for foreign tax evaders, offshore business in Europe has lost much of its appeal, forcing Swiss financial institutions to reinvent themselves. Some succeeded; others did not—hence their disappearance.
7. Scandals Tarnishing Reputation
For some Swiss private banks, tax arbitrage with foreign clients was only part of the story. Several were also implicated in cases of tax fraud, money laundering, or dealings with dubious clients (think oligarchs).
For example, Mirabaud was recently called out by Swiss regulator FINMA for severe violations of anti-money laundering rules. Such issues erode trust.
IHAG was also involved in a US money laundering case and granted a loan of 30 million francs to the now-failed Austrian real estate speculator René Benko.
8. Falling Interest Rates Narrow Margins
As if all of this wasn’t enough, interest rates are expected to fall globally once again.
After two years of record-breaking earnings due to rising rates, the prospect of lower rates will squeeze margins further and set off alarm bells at many private banks.
