Swiss private banks may finally merge

Bloomberg

For years, Swiss private banks largely resisted the temptation to merge with rivals. Often run by proud families, few wanted to let go of their independence or dilute their legacies. While local giants UBS Group AG and Credit Suisse Group AG went through painful reorganisations, smaller banks had time to continue with business as usual, even winning over disaffected clients from the wealth-management powerhouses.
Now that may be changing. Vontobel Holding AG, a Zurich-based asset-management firm, announced the acquisition of the private-banking operations of Raiffeisen Switzerland for 700 million Swiss francs ($705 million). That may not be a big deal in the grand scheme of things. But in the rarefied world of Swiss private bankers, who are grappling with the loss of their prized secrecy and wary clients, the transaction could augur a spate of dealmaking.
The rebound of UBS and Credit Suisse, which have largely completed their overhauls by concentrating on their core wealth management arms instead of investment banking, may also help drive the push to seek partners. Smaller firms, which have papered over the cracks in their models thanks to rising stock markets and client assets, may no longer be able to put off making a move.
“As the giants apply competitive pressure on the minnows, scale and efficiency will once again be key components of success,” said Frederic Ponzo, managing partner at GreySpark Partners, a London consulting firm that specialises in finance. “I think a period of consolidation is unavoidable, especially for mid-sized banks that emerged and shined during the last decade, like Vontobel.”
A 94-year-old firm known for its eclectic art collection, Vontobel has been getting ready for this moment. It amassed 600 million francs in dry powder as it hunted for targets. In Raiffeisen, Vontobel Chief Executive Officer Zeno Staub found a counterparty primed for the sale of a key asset. Switzerland’s third-biggest bank has been hit by a governance scandal as Swiss prosecutors investigate the investment practices of its former CEO, Pierin Vincenz. Raiffeisen had only recently built up its private-banking division, which is called Notenstein La Roche and has 16 billion francs in assets under management. Analysts liked Staub’s timing. “It’s a classic plug-and-play scenario, and Vontobel is increasing its presence in a consolidating market,” said David Hart, an equity research analyst at Kepler Cheuvreux in Zurich.

STUBBORN FAMILIES
For all the buzz around the deal, an M&A cycle may unfold fitfully in an industry where venerable institutions, as well as their wealthy clients, crave stability, not dealmaking. Moreover, many banking families may prefer to be the acquirer, not the acquiree. “Every week I have someone who is willing to buy the bank,” said Cedric Anker, the CEO of Banque Cramer & Cie., a Geneva-based firm that traces its lineage back more than three centuries. “We are not willing to sell; we are willing to buy, like every other player in this market.”
While scaling up may be gospel in other banking markets, in Switzerland, smaller players have long been content to stand fast, providing white-glove service to their demanding clients and controlling costs by outsourcing back-office functions. In a time when so-called robo-advisers are offering asset management at bargain-basement rates, Anker says clients are still willing to pay a premium for the Swiss private banking experience.

COST SQUEEZE
Swiss private banks aren’t totally immune to the forces reshaping the financial industry. The global regulatory crackdown that began after the crash of 2008 not only led to the Swiss government giving up the confidentiality that made it a global wealth magnet. The new rules also imposed a raft of tax disclosure and know-your-customer requirements that made their businesses costlier than ever.
“The old business model was to a significant extent about being discreet — and potentially not tax compliant. Now, that’s all over,” said Alfred Moeckli, CEO of Liechtenstein’s VP Bank AG. The lender, which was founded in 1956 and is owned by three families, had inflows last year for the first time in seven years. Moeckli says his bank will achieve its desired size through acquisitions, and has the firepower to acquire a lender with up to 25 billion francs in assets under management.
Recent customer withdrawals, falling profits, and damage to the industry’s reputation have all taken their toll. That’s bound to encourage weaker players to seek the embrace of stronger ones, according to the Boston Consulting Group. It predicts the top 10 banks, led by UBS and Credit Suisse, will control 90 percent of assets under management in Switzerland by 2021, a big jump from the 75 percent they held five years ago.