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August 30, 2006
Swiss private banks have much to gain from wealthy clients
Porsche sales are booming, Breguet cannot make enough luxury watches to meet demand – and Switzerland's private banks are reporting record profits.
Vontobel, Sarasin and EFG, three quoted banks that form the backbone of Switzerland's mid-sized private banking sector, along with non-quoted Pictet and Lombard Odier Darier Hentsch, reported outstanding interim results this month.
Vontobel, the Zurich-based group that is also a force in structured products, said net profits jumped 54 per cent to nearly SFr131m ($106m).
Sarasin, a Basel-based rival, announced a 50 per cent leap in net profits to more than SFr65m. EFG, the upstart private bank floated last year, said profits had doubled to almost SFr101m.
All three, like much bigger UBS and Credit Suisse, are riding high on buoyant equity markets and rising client affluence. Bull markets bring private banks a double advantage: they encourage clients to do more business, generating commission; and they automatically inflate earnings, as banks' management fees are based on the value of clients' portfolios.
But in spite of their upbeat figures, the three companies' results tell a much more nuanced story.
"The three present a rather differing picture. Although profits have risen across the board, at Vontobel and Sarasin underlying problems of limited growth in net new money in private banking remain the issue," says Thomas Kalbermatten, analyst at Credit Suisse.
EFG showed how it should be done. The bank has an unusual business model, with client relationship officers (CROs) who are virtually independent profit centres at liberty to comb the world for new business. With their number rising by almost 60 per cent to 356, money inflows have boomed.
EFG has also been helped by acquisitions such as its purchase of Harris Allday, a UK broker, which has left EFG on track to meet its goal of raising its assets under management to SFr115bn-SFr125bn in 2008.
At Vontobel, by contrast, booming profitability was fuelled predominantly by structured products – the biggest business of its kind in Switzerland.
Proceeds from alternative investments should rise further following December's SFr80m purchase of a majority stake in Harcourt Investment Consulting, a fund of hedge funds manager.
The bank is also reaping the rewards of its 2004 alliance with Switzerland's co-operative banks. Vontobel sold a 12.5 per cent stake in itself in return for taking over the co-operatives' settlement and custody business, as well as gaining exclusive rights to execute their securities and derivatives orders. Given the high fixed costs of computing power and compliance, the extra throughput is boosting Vontobel's bottom line.
Sarasin's story remains the least clear of the three.
The group is controlled by its partners and Rabobank of the Netherlands. Although Sarasin's size makes it an obvious takeover candidate or consolidator in the fragmented Swiss private banking sector, it has steered clear of big moves, in spite of holding talks with virtually everyone. Analysts say a takeover has not happened because Sarasin's managing partners cannot agree among themselves, let alone with the Dutch. Management changes have not helped.
The future may become clearer when Joachim Strähle arrives as Sarasin's new chief executive on September 1. Mr Strähle, former head of private banking in Asia for Credit Suisse, is expected to provide important openings in a region generating growth for Switzerland's private banks.
For while EFG, which already has a wide international network, has tapped into rising global affluence, Vontobel and Sarasin have been restricted by their predominantly Swiss focus.
Both are trying to expand: Vontobel has offices in southern Germany and Austria, and is targeting central and eastern Europe. Sarasin has taken limited initiatives in locations as diverse as Dubai and Asia. But the two are still largely focused on traditional "offshore" business out of Switzerland.
Profits have perked up, but the long-term threats of spiralling regulation and ever more alternatives for wealthy foreign customers suggests the earnings boom may not last.
-FT.com-
Posted by su at August 30, 2006 10:13 AM