Swiss banks, particularly those with more than $100 billion in AUM, are looking to cut costs more than their global peers to boost profits this year.
Euromoney's survey of more than 2,000 respondents globally showed that – while the average private bank globally said it would generate profits first by adding clients, then by engaging current clients and thirdly by cutting costs – Swiss banks said cutting costs was second on the list, with client-acquisition seen as the primary driver of profit-generation.
In the survey, 21.7% of Swiss private banks with more than $100 billion AUM said profits this year will come from cost-cutting compared with 19.4% of all Swiss banks and just 11.3% of all private banks globally.
Only 65% of Swiss large banks said they were expecting revenues to increase this year versus a global average of 78%.
UBS and Credit Suisse are likely to be among those in need of further cost cutting, which became clear in earnings reports this week.
On Monday, UBS announced its fourth quarter 2014 results. Earnings in the wealth management division came in below analyst estimates, but the business still produced the highest quarter profits since 2008. Over the year, profits before tax were up 4% compared with the previous year.
In a statement accompanying the results, Group CEO Sergio Ermotti said there would be pressure on profitability as a result of the “increased value of the Swiss franc relative to other currencies, especially the US dollar and the euro, and negative interest rates in the eurozone and Switzerland”.
The wealth management Americas division was boosted by lending. Its loans increased from $39 billion to $45 billion during the course of the year.
The firm is in the middle of a CHF1.1 billion cost-cutting drive, but analysts suggest more will come as a result of the Swiss franc/euro unpegging. Emerging allegations of US client tax evasion will also put pressure on the firm. It already paid $780 million in 2009 to settle a separate Justice Department tax-evasion probe.
In Credit Suisse’s results announced on Thursday, the bank said it cut CHF200 million from its cost base by the end of 2017. It also slashed senior executive compensation in light of the US tax-evasion fine. In response to the impact of the unpegging of the Swiss franc on costs, the bank said it would be looking at whether location changes would be possible to reduce the compensation paid in francs.
Group CEO Brady Dougan said on Thursday, commenting on the results: "In private banking and wealth management, we reported solid strategic pre-tax income of CHF1 billion. Our results were negatively impacted by lower performance fees and the ongoing low interest-rate environment, compared to the fourth quarter of 2013.
"However, we continued to see strong loan growth from our ultra-high-net-worth individuals lending programme and improved collaboration revenues between our two divisions. In wealth management clients, we generated good net new assets with strong inflows from emerging markets.”