International Private Banking Study 2013 – University of Zürich

The sixth annual International Private Banking Study 2013 published by the University of Zürich is out.

Although the results of this study are not surprising, they confirm several critical points:

  • The economic and political stability required has still not been found and is reflected by an continued increase in new regulations on financial institutions worldwide.
  • Cost / income ratios, despite improving, must still come down for banks to be sustainable in the long run. While Swiss banks have by far the highest total revenue per employee, personnel costs (adjusted for PPP) which are far above international averages, diminishes the adjusted gross margin on AuM.
  • Cost / income ratios across all countries has increased from about 65% in 2004 to about 70% in 2012. Swiss banks spend, on average, 76 percent of all revenue on generating that revenue. The increase is primarily due to wages and an increase in compliance and regulatory costs.
  • Wage costs per employee from 2006 to 2012 have decreased for all countries except Benelux . Switzerland decreased from 2006 to 2009, but has increased from 2009 to 2012 almost to the 2006 levels. After adjusting for PPP, wages are still highest in Switzerland, but considerably less than the popular press is complaining about.
  • Further cost reductions will prove to be difficult given the expected offsetting increase in costs due to new regulations. Here the only solutions are to automate as much as possible and to really focus on client delight.
  • New net money (NNM) continues to very slightly grow, the majority at the largest banks. Market performance and currency effects helped NNM in 2012 across the board.
  • When analyzing Performance vs. Efficiency in Figure 25 below, we see that the correlation between the two variables is weak at best suggesting that none of the prescribed effects dominates. Roughly 1/5 are outperformers and another 1/5 are underperformers. 32 percent are highly efficient but have low profitability. 29 percent are highly profitable, but are not efficient. It seems that the balance between profitability and efficiency is a hard tight-rope to walk. We observe that bigger banks tend to perform somewhat better than smaller banks in terms of cost/income ratio and smaller banks, by offering more individualized services, tend to achieve comfortable gross margins.
  • Overall, 2012 proved that prospects are brightening for Swiss banks. AuM, profits and costs were better than in previous years. Many banks are adapting their business models and some are beginning to explore new technological potentials.

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