Future Uncertain for Swiss Private Banks

Switzerland’s private banks and wealth managers are under increasing pressure after the recent appreciation of the currency. After the Swiss National Bank decided to abandon the euro cap on the Swiss franc, the currency soared briefly before returning back to more moderate levels .

Financial experts believe the move by the Swiss National Bank will be extremely harmful for private banks in the country, which may lead to staff reductions, hiring freezes and bankruptcies. Currently, many asset managers use the Swiss franc to denominate local costs but depend on foreign currencies for a significant portion of their revenue.

Julius Baer, Switzerland’s largest private bank, due to the recent currency spike, the firm is contemplating layoffs and cost-cutting measures. In a statement released by the international rating agency Moody’s, “Credit Suisse, Zuercher Kantonalbank, UBS and Julius Baer shall be most adversely affected by currency translation on their assets denominated in foreign currencies.”

In a statement given by Thomas de Saint-Seine, the CEO of RAM, a Swiss wealth fund, said that his group will freeze all hiring in Switzerland and will work to re-negotiate terms with its Swiss providers to try and dampen the effects of the recent currency fluctuations. The embattled chief executive forecast RAM’s net profitability will fall as much as 20% if the foreign exchange rate of the Swiss franc remains at its current level.

Other private banks and fund groups in Switzerland have recently made measures to reassure their investors and stockholders that the currency setback would have only a minimal impact on their operations. Martin Moeller, the head of equities at UBP, a private Swiss bank, stated, ““Private banking has had a couple of difficult years already. I don’t think this will lead to any bankruptcies but [some private banks] will consider their options.” Meanwhile private bank Notenstein, which draws 70% of its customer base from its native Switzerland, stated that it had not incurred any losses. Another bank, EFG International, is predicting only a slight impact on its pre-tax profits.

Ray Soudah, head of Millenium Associates, a Swiss consultancy group, painted a less rosy picture, stating, “The first likely action is cost cutting and further employee layoffs and cost cutting at home may be the first foreseeable action, but I also predict domestic takeovers. Foreign firms considering buying Swiss private banks will be cautious.”

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