1. Newsroom
  2. Which European strategy should Swiss banks adopt?
Menu
UBP in the press 14.06.2017

Which European strategy should Swiss banks adopt?

Which European strategy should Swiss banks adopt?

Le Temps - For a bank to achieve penetration in a market other than its domestic market, it needs to develop financial products and services that suit specific local features.


Although a break-up of the eurozone was regarded by some as inevitable after last year's Brexit vote, that is no longer a real threat. On the contrary, recent elections in the Netherlands and particularly France – where Emmanuel Macron has from the outset been in favour of a stronger, united Europe – seem to have breathed new life into the European project. For the UK – which has been plunged into uncertainty by last week's parliamentary election – and by implication for Switzerland as well, the opportunities for bilateral talks that could have arisen from a break-up scenario will therefore no longer arise.

Eventually, Europe's new impetus could lead to stronger European governance and solidarity against the UK, but also Switzerland, when talks take place on future political and trade relationships. As a result, the prospect of banks established in Switzerland gaining access to the European market seems to be receding by the day, especially since discussions with Bern now appear to be lower on Brussels' to-do list. Rather than maintaining false hopes, Swiss banks are now taking a pragmatic approach.

European operational hubs

Banks are implementing several business models depending on their size and European strategy. The largest banks have opted to set up European operational hubs. They are located in Germany or Luxembourg and are intended to manage all the banks' European subsidiaries outside Switzerland. The main aim of these hubs is to take an "industrial" approach to optimising operations, and have no direct connection with EU talks.

Other banks have less ambitious plans, setting up European subsidiaries to develop branches that have strictly commercial operations. The aim is to benefit from European passporting through small units that have local competencies, with centralised booking generally based in Luxembourg.

Lastly, banks that do not have critical mass are taking a more conservative approach. Rather than developing European franchises they are promoting their booking capabilities in Switzerland, Monaco or London, offering clients a way of diversifying geopolitical and currency risk when managing their assets.

Europe more difficult than Asia

Whatever the approach adopted, the issue that all Swiss banks face is to remain competitive in a foreign market. For a bank to achieve penetration in a market other than its domestic market, it needs to develop financial products and services that suit specific local features and tax environments, and must have a firm grip on capital adequacy and tax reporting obligations. Having a "local" bank is helpful in meeting those requirements.

As a result, Europe has become a more hotly contested market, where it is a real challenge for foreign banks to combine a competitive product range with a competitive business mix that delivers sustained, profitable growth. Because entry barriers are higher today in Europe than they are in Asia.

European countries are also competing hard with each other to offer attractive tax arrangements. For example, Portugal is drawing in many new European and non-European residents with its long-term tax exemptions. Italy has also announced a plan to attract new tax residents. Following the Brexit vote, the UK has clearly signalled that it will also introduce favourable tax arrangements.

Clearly, banks need to be agile and clear-sighted when betting on which country will be the next Eldorado for wealth management. It is worth noting that the referendum vote against Switzerland's Corporate Tax Reform Act III in February could adversely affect Switzerland relative to countries seeking to attract residents and companies with new tax breaks.

More homogeneous offerings

In the current situation, Swiss banks' attempts to increase coverage in Europe are not certain to succeed. Despite cultural similarities and historical links with European client bases, Europe is no longer offering the growth prospects it used to. The opportunity set has shifted to countries seeking stability and diversification, such as those in the Middle East and more broadly in emerging-market countries.

In a new development, Swiss banks' settlement of their disputes with the US Department of Justice means that the US market once again holds a lot of potential for them. Banks that have the right legal and operational structures to handle US clients could have an advantage over the long run.

Turning back to Europe, the product ranges of European and Swiss banks are becoming more homogeneous and standardised. In the coming year, this process will speed up as MiFID II comes into force, requiring all European and Swiss banks to comply with identical rules regarding transparency and compliance in the way they manage client relationships. This is the main challenge Swiss banks face in developing a European client base over the long term.

Read the original article in french (.PDF)

MichelLonghini.jpg

Michel Longhini
CEO Private Banking

Newsletter

Sign up to receive UBP’s latest news & investment insights directly in your inbox

Click and enter your email address to subscribe

Le news più lette

UBP in the press 18.10.2018

Tech sector driven by innovation

Sphere (10.2018) - Since the 2008-09 global financial crisis, the global technology sector has delivered an impressive annual return of 15.4%, easily outpacing global equities as a whole (10.2%).

UBP in the press 26.09.2018

Asset TV Fund Selector: Fixed Income

What does the end of quantitative easing mean for bond investors? What should be the right exposure to emerging bond markets and why are active managers better equipped than passive ones to handle the return of volatility? Mohammed Kazmi, Portfolio Manager & Macro-Strategist Global and Absolute Return Fixed Income at UBP, recently participated in an Asset TV broadcast outlining the risk and reward trade-offs in fixed-income markets over the next six to twelve months.

UBP in the press 28.09.2018

AI will benefit Swiss banks

Bilan (25.09.2018) - “If I had to bet on which would be the leading professions in the years to come, Swiss bankers would be on the list!” This prediction by Laurent Alexandre, the founder of the Doctissimo.fr website, may come as a surprise to some.


Altro da leggere

UBP in the press 12.12.2018

Innovation creates opportunities in healthcare

Bilan (13.12.2018) - The secular trends in healthcare – ageing populations, emerging market demand, and expanding basic health insurance – remain well entrenched. However, investors should shift their focus towards differentiated innovators in the healthcare space via mid-sized biotech and medical technology (like Swiss companies Lonza and Galapagos, for example), and healthcare-focused IT companies (such as Teleadoc).

UBP in the press 03.12.2018

It’s all in the family for Union Bancaire Privée's de Picciotto

The Straits Times (25.11.2018) - As times change, CEO’s ambition is to make UBP one of the biggest family-owned banks.

UBP in the press 27.11.2018

A new era begins for investing wealth

Forbes Middle East (22.11.2018) - Tougher regulations, tax declarations and transparency trends are significantly reshaping the private banking industry, and the Middle East is no exception to this.