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
PROMOTED VIDEO
Arts and Entertainment
Peter Mayhew as Chewbacca alongside Harrison Ford's Han Solo in 'Star Wars'
film
News
i100
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
filmIdris Elba responds to James Bond rumours on Twitter
News
Hackers revealed Oscar-winning actress Lawrence was paid less than her male co-stars in American Hustle
people
Arts and Entertainment
Ellie Levenson’s The Election book demystifies politics for children
bookNew children's book primes the next generation for politics
News
Outspoken: Alexander Fury, John Rentoul, Ellen E Jones and Katy Guest
newsFrom the Scottish referendum to the Ice Bucket Challenge, our writers voice their opinions
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Sport
Adnan Januzaj and Gareth Bale
footballManchester United set to loan out Januzaj to make room for Bale - if a move for the Welshman firms up
Arts and Entertainment
Lena Headey as Cersei Lannister in Game of Thrones
film
News
i100
Sport
Yaya Sanogo, Mats Hummels, Troy Deeney and Adnan Januzaj
footballMost Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
News
Nigel Farage celebrates with a pint after early local election results in the Hoy and Helmet pub in South Benfleet in Essex
peopleHe has shaped British politics 'for good or ill'
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

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?
Finally, a diet that works: Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced

Finally, a diet that works

Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced
Say it with... lyrics: The power of song was never greater, according to our internet searches

Say it with... lyrics

The power of song was never greater, according to our internet searches
Professor Danielle George: On a mission to bring back the art of 'thinkering'

The joys of 'thinkering'

Professor Danielle George on why we have to nurture tomorrow's scientists today
Monique Roffey: The author on father figures, the nation's narcissism and New Year reflections

Monique Roffey interview

The author on father figures, the nation's narcissism and New Year reflections
Introducing my anti-heroes of 2014

Introducing my anti-heroes of 2014

Their outrageousness and originality makes the world a bit more interesting, says Ellen E Jones
DJ Taylor: Good taste? It's all a matter of timing...

Good taste? It's all a matter of timing...

It has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
Olivia Jacobs & Ben Caplan: 'Ben thought the play was called 'Christian Love'. It was 'Christie in Love' - about a necrophiliac serial killer'

How we met

Olivia Jacobs and Ben Caplan
Bill Granger recipes: Our chef's breakfasts will revitalise you in time for the New Year

Bill Granger's healthy breakfasts

Our chef's healthy recipes are perfect if you've overindulged during the festive season
Transfer guide: From Arsenal to West Ham - what does your club need in the January transfer window?

Who does your club need in the transfer window?

Most Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
The Last Word: From aliens at FA to yak’s milk in the Tour, here’s to 2015

Michael Calvin's Last Word

From aliens at FA to yak’s milk in the Tour, here’s to 2015