Swiss banking exodus: Going (HSBC), going (Generali), gone (Lloyds, ING, Santander)

Rising costs and increased scrutiny have led foreign banks to conclude exit is the best option

Lloyds has left, HSBC will probably be next, and others on the Continent are dusting off their passports with a view to quitting too. The once must-have accessory for the self- respecting bank – a private Swiss branch – is rapidly being seen as a relic from a previous age – a luxurious indulgence as unaffordable as a Patek Philippe watch.

Switzerland's once legendary secrecy, once such an attraction to wealthy international clients, is eroding fast and being replaced by rising compliance costs, chipping away at profits.

The number of foreign-owned Swiss banks fell to 129 by the end of May from 145 at the start of 2012, according to data from the Association of Foreign Banks in Switzerland. Assets under management slid by a quarter to Sfr870.7bn (£604.3bn) in the five years to 2012, the data shows, as clients withdrew money or paid taxes on undeclared accounts.

A crackdown on bank secrecy and increased regulatory scrutiny may unlock a wave of mergers and acquisitions in the next 12 to 18 months, according to bankers, consultants and analysts interviewed by Bloomberg News. While Switzerland remains the biggest centre for global offshore wealth with $2.2trn, or about 26 per cent of the market, according to Boston Consulting Group, departures may further chip away at the Alpine Republic's status.

"There will be a shake-out among private banks," said Felix Wenger, a Zurich-based director and co-head of the private-banking practice at consultants McKinsey & Co. "Specifically for Switzerland, foreign players might conclude that an exit is a better option."

Lloyds Banking Group sold its international private-banking business in May to the Swiss wealth manager Union Bancaire Privée, which also bought part of the offshore business in Geneva from Spain's Santander a year ago. In 2009, Commerzbank sold its Swiss units and ING disposed of its private bank in Switzerland.

HSBC, the biggest foreign private bank in Switzerland by assets under management, may sell parts of its Swiss operations, its chief executive, Stuart Gulliver, signalled in May. The Italian insurer Generali is trying to sell BSI Group, the 140-year-old Lugano-based private bank.

More banks may also be reviewing their presence in Switzerland, said Christopher Wheeler, a London-based analyst at Mediobanca. A recent report by PricewaterhouseCoopers showed more than a third of wealth managers expect "significant consolidation" over the next two years in what will be a shake-up led by the top performers.

Almost a third of Swiss private banks had outflows of funds – more money leaving than walking in – in 2012. About one bank in six made a loss. "As a result, many players are reviewing their geographical footprint, especially in offshore markets, leading to renewed merger and acquisitions activity," the McKinsey report said.

Switzerland's market share slipped to 26 per cent from 27 per cent in 2011, and by 2017 may decline to 25 per cent, according to Boston Consulting's Global Wealth report in May.

The United States has been investigating Swiss banks and units of foreign banks in the country, including that of HSBC, after UBS in 2009 avoided prosecution by admitting it fostered tax evasion and delivering data on about 4,700 accounts of Americans. France and Germany have been searching for tax dodgers using data stolen from Swiss banks and also sharing some of the information with authorities in other European countries.

Agreements with Britain and Austria to collect taxes on behalf of those countries on accounts held in Switzerland have been in force since January, and Switzerland is in talks with other European countries on taxing secret accounts. The country will join the international push against tax dodgers and help develop global standards, allowing banks to share customers' details, the Finance Minister Eveline Widmer- Schlumpf said in June.

"A combination of government actions from the US and the EU and increased regulatory pressure is likely to trigger further changes in Swiss private banking, because it will make it more costly to do business," Francois-Xavier de Mallmann, the head of investment-banking services in Europe for Goldman Sachs, said. "We expect consolidation to continue in private banking and to likely accelerate as the uncertainty weighing on the sector decreases."

Mediobanca's Mr Wheeler agrees: "It's a question of whether you can afford it, whether it's making the returns or whether it's there to facilitate something else within the group."

Margins have fallen dramatically in recent years as Switzerland toughens up its regulatory regime. "Smaller players will either be forced to close or merge with larger banks as the compliance and regulatory costs become unbearable for banks which don't have a critical mass," said Eleni Papoula, a London-based analyst at Berenberg Bank, citing firms with less than Sfr10bn in assets under management. Information technology and compliance expenses should increase given tighter regulation and greater scrutiny by the financial and tax authorities, she said.

Only about 20 of the foreign banks in Switzerland, including HSBC and Société Générale, have close to or more than Sfr10bn in assets under management, data from the association show. The private-banking business sold by Lloyds in May had £7.2bn of assets under management.

Some of the smaller ones are very focused on a particular market and are profitable, while others grew before the financial crisis by hiring relationship managers who brought in clients from all over the world, Martin Maurer, the secretary general of the Association of Foreign Banks in Switzerland, said.

"Now they don't really have a good idea about why they should exist," Mr Maurer said. "They're not focused on any particular markets or countries, don't have a long tradition, and in those cases shareholders may not be interested in supporting businesses that make losses or very small returns on capital here and be exposed to risks."

Banks in Switzerland will also need to develop new products and services to attract foreign clients now that banking secrecy is no longer an argument. They will doubtless push Switzerland's political neutrality and stability. But international banks will have to decide if this alone is enough to drive the customer growth needed to justify the expense of keeping the glamorous Swiss addresses going. Most will decide to pack their bags.

Start your day with The Independent, sign up for daily news emails
Sport
football This was Kane’s night, even if he played just a small part of it
Travel
travel Dreamland Margate, Britain’s oldest amusement park, is set to reopen
News
news
News
Founders James Brown and Tim Southwell with a mock-up of the first ever ‘Loaded’ magazine in 1994
media
News
Threlfall says: 'I am a guardian of the reality keys. I think I drive directors nuts'
people
Voices
voices The group has just unveiled a billion dollar plan to help nurse the British countryside back to health
News
The Westgate, a gay pub in the centre of Gloucester which played host to drag queens, has closed
news
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss