Predictions have sometimes been made that Swiss private banking and finance is on a downward slope, as rival countries vie for the offshore centre crown. But the country is continuing to reinvent itself and stay competitive. The editor takes a quick tour around the issues.
It is always good to get a change of perspective and my regular trips to Switzerland are an opportunity to do just that – I am in Geneva to meet industry figures and for our tenth annual WealthBriefing Awards programme in the country. Switzerland is still the world’s single largest offshore centre. According to Boston Consulting Group in 2021, the Alpine state was home to $2.4 trillion of wealth.
Some of that figure might – in the intervening two years between that BCG report and now – have wobbled a bit. And, as banks’ results have shown in past weeks, assets under management at lenders are down. Even UBS, the titan of the Swiss banking industry, couldn’t escape the downward impact of falling markets last year. Even so, for all the talk a decade ago (it feels longer!) of how the Swiss banking industry was on the way out, that was a premature judgement.
There has certainly been consolidation in the Swiss banking sector, but not quite the “wave” of consolidation that is sometimes talked about. At the top end, occasional mutterings that UBS and Credit Suisse might tie the knot come up against the regulatory and policymaking doubts about creating a mega-bank with the “too-big-to-fail” characteristics that were top of mind in the 2008 financial crash. Yes, Credit Suisse is going through rough times, and has to restore its reputation and successfully push through with risk and cost reductions. (As of the time of going to press, the latest Credit Suisse results were out, and that bank has a lot of work to do in stemming outflows and rebuilding.) But Credit Suisse is still a large player, albeit one under pressure.
Julius Baer did its share of M&A almost a decade ago, such as the Merrill Lynch transactions in the UK, and it has built joint ventures and built out business footprints in Southeast Asia, among other places. The medium-sized players, such as Lombard Odier, Pictet and Mirabaud, ended their old unlimited liability ownership structures almost a decade ago, and now report their financial figures. (Before, no such detail had to be given out, to the frustration of journalists.) There's still quite a rump, though, of old-fashioned private banks with unlimited liability structures. I wonder how much longer they can endure.
Switzerland has to some degree had to reinvent itself. There have been legislative tweaks and an entry into the cross-border Common Reporting Standard on information exchange about a decade ago, which means that its old bank secrecy regime has ended, at least for non-Swiss clients of Swiss banks (in the country, it is still a criminal matter to disclose who local clients are).
Switzerland is now a fintech leader in certain respects: consider firms such as Avaloq, Temenos and ERI Bancaire, for example. And consider also how the Swiss “crypto valley” in Zug, spilling over into Liechtenstein, has given the country an edge in developing digital assets and associated technologies using blockchain. Notwithstanding the falls in bitcoin, stablecoins and other entities last year, the digital assets space is not going away. In fact last year’s bankruptcy of Bahamas-registered FTX, the crypto exchange, makes Switzerland look relatively stable by comparison. The Swiss regulator, FINMA, knows it cannot take any nonsense.
Almost exactly a year ago, the country chalked up a major “first” – following the invasion of Ukraine, it backed the European Union and US over sanctions against designated Russians. This has to some extent made obvious what was bubbling under the surface for a while, which is that Switzerland’s famed political neutrality is fraying at the edges, but that's not necessarily a problem. It had to make a decision. And yes, it may mean that a lot of Russian money has decamped to places such as Dubai. (A friend of mine who works in Asia told me that in Dubai airport, the lounges echo to the sound of Russian voices.) Another issue, which will take some care in managing, is that wealthy families in the Gulf may feel that the region is less geopolitically volatile than it was a few years ago, and therefore think there's less need to park some of their assets in a safe place such as Switzerland. The hotels and restaurants of Geneva and Zurich have made a good living from Middle East clientele – some of that might possibly change.
Also, Switzerland has been through a regulatory overhaul of its external asset management sector, so there is likely to be consolidation of EAMs and trust firms. From what I have seen of some of the data, the number of trustees is already down quite sharply. The number of EAMs, often set up by bankers breaking away from old firms to be independent, has mushroomed. However, in recent years policymakers have wanted to create order, and whatever the consequences, new rules are with us.
The famously independent-minded Alpine state knows that it must not overdo the regulatory push, lest significant business flees. (The UK, post-Brexit, must accept a similar calculation.) Rival centres look enviously at Switzerland. And the neighbouring European Union, which is pushing Switzerland to replace over a hundred bilateral treaties with a framework pact, has been playing hardball over matters such as Swiss immigration restrictions and state aid. Switzerland has access to the EU Single Market and is in the passport-free Schengen area, but there’s always the risk that a row could damage that. It’s unsurprising that the Swiss cast a nervous eye at the UK over what could happen if there is a serious rupture with Brussels. That relationship calls for delicate handling. And it also means that Switzerland must forge strong links with other, non-EU hubs such as the UK.
BCG argued in its 2021 report that in 2020, the rankings of “leading cross-border” centres were, in descending order: Switzerland, Hong Kong, Singapore, the US, the Channel Islands and Isle of Man, the United Arab Emirates, the UK mainland, Luxembourg, Monaco, and Liechtenstein. In 2025, BCG predicts the following ranking: Hong Kong, Switzerland, Singapore, the US, the UAE, the Channel Islands and Isle of Man, the UK mainland, Luxembourg, Monaco, and Liechtenstein. BCG predicted that Hong Kong, buoyed by the Wealth Connect links to the mainland, would overtake Switzerland in these rankings by 2025. Perhaps BCG hadn’t banked on Beijing's zero-Covid regime and its impact on Hong Kong, or the dampening impact of China’s national security law of 2020 on Hong Kong. That said, the momentum appears to be with Asia for the medium term.
Even so, as I look out of my hotel across Lake Geneva, and meet many of the figures in this industry, I am not sensing any complacency or sense of dark forboding, either. This is a country that has made much of the benefits of stability over the centuries. Considering what the past few years have been like, it is a priceless asset.