Swiss banks go back to basics

GENEVA – The Swiss banking flagships could still be in for difficulties in 2009 amid unsettled financial markets and a deepening global economic crisis.

To the dismay of Switzerland, the biggest bank UBS earlier in February posted annual losses for 2008 reaching almost CHF 20 billion (USD 17 billion, EUR 13 billion), the largest in the country’s corporate history.

Meanwhile the second biggest bank, Credit Suisse, lost CHF 8.2 billion, its worst on record.

Both blamed their investment bank units for the damage, and both are aggressively cutting back on those divisions.

At the same time, UBS said it would now refocus "on its Swiss core business, on the large scale and strengths of its international wealth management franchise in Switzerland and on the growth potential of its onshore business globally".

While most of the 5,300 job cuts at Credit Suisse would come from investment banking, the group said it added 340 wealth management "relationship" managers in 2008.

"Basically what they are saying is that we are going to go back to the core business of wealth management for international clients and retail banking within Switzerland", said Arturo Bris, a finance professor at the Swiss business school IMD.

Big Swiss banks offer such wealth management services to local clients with assets of at least CHF 250,000, but for those outside Switzerland, the entry level is much higher.

But the big banks are now not only showing special attention to these clients. Some regular retail banking clients in Switzerland who did not receive personal calls from their banks in years also recently received calls offering appointments to "discuss their needs".

A UBS spokeswoman said she could not discuss individual cases but said that such calls are a "normal part of the financial advising business".

She acknowledged that it is "possible that such needs for customer feedback are bigger now".

The return to a more personalised banking service marks an end to the high-risk driven world of investment banking that the biggest Swiss banks, particularly UBS, began focusing on around 2005.

UBS sought in 2005 to boost profits by expanding its investment banking business, particularly pushing into US mortgage-backed securities and structured credit and commodities businesses.

The returns came quickly. UBS’s investment bank unit reported its "most profitable year ever" in 2006, with a 15 percent jump in pre-tax profit as revenues in equities and investment banking soared.

But high profits were fueled by high risks, and the trend began to reverse in 2007, leading to the bank’s historic first annual loss.

As the contagion spread from subprime mortgage papers to other types of derivatives, major investment banks began to crumble, with the collapse of Lehman Brothers arguably the worst point for the industry.

Analysts say the worst may be over for major Swiss banks, since they reduced risks.

"At least they have cleaned up their house", said Bris.

But even if they are returning to the typical brand of Swiss banking, they would still face difficulties.

Manuel Ammann, who is director of the Swiss Institute of Banking and Finance, also said, "You can argue that for the large Swiss banks with investment bank divisions, the worst is over as they have reduced their risks considerably".

But he noted that for general Swiss banks, 2009 could still be difficult "as revenues would be affected by the economic downturn and weak stock markets".

Zuercher Kantonalbank analyst Andreas Venditti also said he expected "challenging market conditions due to the sharp economic weakness".

[AFP/Expatica]