GENEVA (Reuters) - Swiss private bankers say a capital shortfall in the financial sector and a clampdown on tax evasion stand in the way of much-need consolidation in an industry battling rising costs and falling revenues.
Smaller Swiss private banks and asset managers are suffering from lower fees as their clients sit on safer assets, as well as higher costs from investments in technology needed to comply with new capital, risk, and compliance rules.
This should increase pressure for M&A activity, a trend that experts believe could take hold in Asia but has so far not got off the ground in the world’s most established private banking market.
“We have a lot of break-even to slightly-losing-money institutions that have no business being in the market,” Louay Al-Doory, head of business development at Reyl & Cie told the Reuters wealth management summit in Geneva.
“There are many institutions looking to sell, we have ample choice.”
While Reyl was looking to make selected acquisitions in Zurich and London, there were assets on the market that nobody wants to touch any more.
“You need to be very mindful that you are dealing with declared assets (to tax authorities),” Al-Doory said, adding the bank had turned down an opportunity to buy undeclared assets which were being virtually given away for free.
“Who would be willing to acquire assets that are noncompliant,” said Alexandre Zeller, European head of private banking at HSBC (HSBA.L).
Another obstacle to consolidation is the fact that few banks have the balance sheet strength to cut a deal in the current environment.
Pierre de Weck, head of wealth management at Deutsche Bank (DBKGn.DE), said, “I think there are a number of distressed assets on the market. But they don’t move, and there is a clear reason. Most of the financial services industry has no spare capacity.”
Large lenders are shoring up their balance sheets to meet new capital rules known as Basel III, de Weck said.
“The only way to do consolidation is through mergers of equals between people who don’t have a big Basel III issue to deal with,” de Weck added.
J.P Morgan (JP.N) had looked at four to five businesses with more than $10 billion in assets under management, Pablo Garnica, European head of private banking told Reuters, but in the end opted for organic growth.
“People realize that it is not just the size of the asset, it is the complexity of the integration of the deal,” Garnica said.
The pattern in Switzerland mirrors a trend in the United States where mergers between banks are increasingly scarce.
“We have talked about consolidation for 10 years because of rising costs,” said Peter Fanconi, head of private banking at Vontobel group. “I think we will see much more asset deals and we will see much more liquidations.”
Indeed, struggles among banks across Europe may provide some expansion opportunities for acquirers with healthy balance sheets and an eye for private banking.
"This is a particular opportune time now for attracting both clients and advisers," Royal Bank of Canada's (RY.TO) global head of wealth and asset management, George Lewis, told the Summit in New York on Tuesday. (For a Reuters Insider story, click: link.reuters.com/waw24s)
The Toronto bank wants to expand in the United Kingdom, following up on its purchase of BlueBay Asset Management late last year for $1.5 billion. RBC plans to hire 70 advisers and bankers, bringing its UK total to 100 in the next five years.
“There are going to be some attractive opportunities to expand our base because of the market dislocation we’ve seen,” he said.
Reporting By Edward Taylor; Additional reporting by Joe Giannone in New York; Editing by Alexander Smith, Jane Merriman and Matthew Lewis