Swiss boutiques display healthy range of returns
A quick analysis of international merger and acquisition (M&A) activity in the wealth management market indicates that around 25 significant acquisitions have been made in the last nine months. What is more, half of the deals have included at least one Swiss partner. With large transatlantic mergers seen as the way forward for wealth managers, the Helvetic activity shows Switzerland remains at the heart of international business.
(See table.)
This shows a combination of Swiss players seeking to grow abroad, but also international players beefing up in Switzerland. This latter activity seems to reflect, in part at least, pent up opportunism. During the boom years there was nothing available in Switzerland, but this has all changed with the market downturn.
This high level of consolidation activity also begs two strategic questions. First, what value is available in the Swiss private banking market? Second, considering the importance of scale – what impact does size have on overall profitability? To get an insight into the answers, the following analysis considers the return on asset (ROA) figures for a sample of independent Swiss boutiques compared with the same data from an equal sample of international players (considering only their operations in Switzerland).
ROA is widely regarded as the wealth management chief executive’s preferred yardstick, providing a comprehensive profitability indicator that takes into account performance over total fixed costs.
The ROA calculations were based on the net profit and balance sheet total data available in the Wernlin Directory for 2003/2004. The boutiques selected were privately owned, with assets under management of less than SFr5bn (E3bn). In the other sample, there were nine global banks and three international Swiss private banks.
Depending on size
The results were that boutique Swiss private banks have a mean average ROA of 2.2 per cent, compared with international private banks in Switzerland that manage an average ROA of just 1.3 per cent.
However, the range of performance among the boutiques was more dramatic, for which ROA figures varied from -1.6 per cent to 10.8 per cent. By contrast, performance by the international private banks varied from -0.4 to 2.7 per cent. Only five of the 24 banks in the total sample achieved an ROA above 2 per cent.
In answer to the first question, the ROA results are considerably below other consumer sectors of the economy, although there are certainly some boutiques with very attractive ROA results. In answer to the second, the results are, perhaps, somewhat predictable – a good boutique will beat a volume player any time, but dependability comes with size.
Sebastian Dovey is managing partner at wealth management strategy think-tank Scorpio Partnership
