The Fall of the Mighty Swiss Banks...or is it Swiss Banking Model is in trouble?

Many Swiss Banks have announced major cost cutting measures, right from job cuts to closing departments to closing international offices.

Some main factors are:

Rise of CHF
Even if the Swiss banks did same amount of business in this difficult climate, they would be VERY worse off just due to their rising currency. They have costs in CHF, balance sheet in CHF but almost 90% of business in USD or other foreign currencies.

CHF vs USD
In 2005...1.28
In 2006...1.24
In 2007...1.15
In 2008...1.15
In 2009 ..1.02
In 2010...0.98
In 2011...0.90

Just on currency/FX alone, as per above FX rates of CHF/USD, the balance sheets have reduced by 30% from 2005 to 2011 (1.28 to 0.90 today).

If we added a loss of just 20%, which is quite conservative, in assets managed and total balance sheet size, that would be a total of 50% reduction in size from 2005 until 2011 of the balance sheets of all Swiss banks and the two largest Global Top 10 banks, viz UBS and Credit Suisse.

In addition, we have the negative imnpact of inflation due to rising salaries, rents and other fixed costs and expansion of all Swiss Banks in the same period. We all know inflation is an average of 5% or more each year, so for 6 years should be 30% or more, but let's say the impact was only 10%.

This now adds up to almost 60% decline in balance sheet size and profits and assets when converted into CHF over a 6 year period.

I don't think many businesses can survive if they have a 60% decline, on a conservative basis over a long term of 6 years and going into 7th year, especially if they are publicly listed which is why all Swiss Banks have seen the departure of their CEO's in the last few years besides employee shrinkage and now the real closure of offices in any country around the world which has been unprofitable over the worst global crisis we have seen, in 2009 and 2010.

We are not even including the reputational and goodwill damage that the US prosecution has caused to the Swiss Banks by forcing them to pay billions of dollars collectively in fines for helping US citizens evade taxes and now to their privacy model where the Swiss Banks have signed agreements with Germany, France, India, USA, UK etc to give confidential client names under tax rules of each country.

We also did not consider here the lack of new business activity such as slow IPO's, slow trading and slow M&A fees.

In reality, the Swiss Banking model is weak, crumbling and in trouble. Stock prices of all Swiss Banks indicates the same as well, where most have declined over 70% and some as high as 85% over the past 4 year period.

Without tacit and literal Govt support, these banks would have closed by now due to their intolerant investment banking activities to make trading profits for themselves instead of their fiduciary duty to their customers and their illicit private banking activities in tax evasion and hiding of assets under the guise of privacy.

One more factor to consider is that the income and revenues of all these banks are in USD but their costs of HR, Finance, reporting, regulations, pensions, employees etc are mostly in CHF, which also is having a huge impact on them due to the rise of CHF, which is why the Swiss Central Bank announced that they will have a target CHF price against USD, possibly under pressure from the larger business community that includes luxury watches, export industry, and banks etc.

Meanwhile.....

UBS has cut thousands of jobs, given away client names to IRS and last week also agreed and signed another agreement in which 11 Swiss Banks will provide all information to US Govt, now besides the large USD 2.3bn trading loss in London office, and now they will slow down further and cut another '1,700' jobs, I suspect there will be more job cuts announced all around the world in the coming months besides office/country closures.

EFG International Private Bank has announced that they will close offices in Dubai and Abu Dhabi where they have at least 20-30 employees. EFG came to DIFC in 2005/6 and in 2011 they finally depart, being one of the more successful Swiss banks who were quite client focused, besides closing their offices in Sweden and some in Canada.

EFG International to Post Loss on Job Cuts, Office Closures

By Giles Broom
    Oct. 18 (Bloomberg) -- EFG International AG, the Swiss bank controlled by Greek billionaire Spiro Latsis and his family,
will report a second straight loss this year on costs related to cutting as many as 375 jobs and closing offices. EFG will book one-time reorganization costs and provisions of about 50 million Swiss francs ($55.8 million), a charge related to investments in Greek sovereign debt, and will enter a
lower goodwill figure in its 2011 accounts as it slims businesses to improve profitability, the Zurich-based company said today in a statement.

The bank, which lost 75 relationship managers this year, is cutting 10 percent to 15 percent of its 2,500 staff over the next 18 months and closing offices in Sweden, Finland, Dubai and Abu Dhabi, the company said.

Credit Suisse has also declared that they will announce further cuts when they announce their results next month, early Nov. Clariden Leu is part of the Credit Suisse Group and I do not believe that they are doing any better, as far as their balance sheet is concerned, because they are overleveraged in client accounts due to pressures to grow over the past 5 years when all Swiss Banks were growing fast unlike them and now Clariden is doing quite fine except that most of their clients are into leveraged Emerging Market investments on which Swiss Banks do not have much knowledge of, which could potentially devastate their balance sheet )due to relatively small size despite Credit Suisse parent support) and cause their risk department to curb on emerging market lending leading to mass exodus of high risk clients....

Most Swiss Banks in Middle East and outside of Switzerland will have issues related to their Head Offices where the cost cutting pressure and pressure to  withdraw from international business seems to be beginning to grow acutely, in the last month or two, prior to the Dec 2011 balance sheet. Its always about the Balance sheet!..:)..Thats my view that we might see exit of some more Swiss banks from various cities around the world!

Credit Suisse eyes investment banking cuts

By Haig Simonian in Zurich
    Oct. 14 (Financial Times) -- Credit Suisse will announce
significant adjustments to its investment banking activities
with its third-quarter results early next month.

Julius Baer has its own issues with USA, Rothschild, of all the banks, sold their Private Equity group in Geneva last week.......

The list goes on...I dont think I need to provide any more examples...:)

If you or any one you know has any bank accounts with any Swiss Bank, I would really strongly suggest to review your relationship and investments more actively.

I am not suggesting that any of the Swiss banks will close but the facts indicate that they will get worse in their quality of service, will probably close more offices around the world and who knows some of them might shut down or disappear like Bear Stearns, Lehman and Merrill Lynch disappeared in the USA in 2008. But only this time in 2011 this is a European crisis, so don't hold your breath that some banks actually shut down or disappear....so stay tuned

If you would like to transfer some assets to us for safekeeping in an Indian bank in Singapore, I would certainly like to hear from you.

UBS May Cut 1,700 More Jobs at Investment Bank, JPMorgan Says
2011-10-20 08:55:01.816 GMT

By Elena Logutenkova
    Oct. 20 (Bloomberg) -- UBS AG, Switzerland's largest bank,
may cut about 1,700 more jobs at the investment bank as it
shrinks the fixed-income business, JPMorgan Chase & Co. analysts
led by Kian Abouhossein said.
    "Investors would welcome a strategy aimed at shrinking
UBS's investment bank division and aligning it to mainly support
the private banking franchise," the analysts said in a note
today. "We would expect the restructured investment bank to
consume materially less capital with improved returns for the
investment bank and the group."
    The bank could reduce risk-weighted assets in the fixed-
income business by 70 billion Swiss francs ($77.4 billion),
freeing up about 7 billion francs of capital, the analysts
estimated. The job cuts, representing about 11 percent of total
headcount at the investment bank, would be on top of the
announced reductions of about 1,575 positions, they said.
    Zurich-based UBS plans to reorganize the investment bank to
focus on "advisory, capital markets and client flow and
solutions businesses," making the unit "less complex," Chief
Financial Officer Tom Naratil said at an investor presentation
in London on Oct. 4. The unit will aim to boost return on equity
as UBS reallocates more shareholders' funds toward wealth and
asset management, Naratil said. The bank plans to explain its
strategy to investors on Nov. 17.
    The Swiss bank may shrink its rates and structured credit
businesses to one third of their current size, exit the
commodities business and slim the credit trading unit by about
20 percent, the JPMorgan analysts, who have an "overweight"
rating on the bank, estimated. UBS is unlikely to seek
reorganization of its equities business, they said.

                        Trading Loss
     
    The bank's interim chief executive officer, Sergio
Ermotti, has decided to reduce the size of the investment bank
and to bolster UBS's focus on wealth management, the Wall
Street Journal reported today, citing unidentified people
familiar with his thinking.
    UBS said last month it suffered a $2.3 billion loss from
unauthorized trading in stock index futures at its investment
bank. The trading losses have led to the departures of Chief
Executive Officer Oswald Gruebel and the co-heads of global
equities, Francois Gouws and Yassine Bouhara, as well as the
suspension of a number of front office staff.
    Kweku Adoboli, the trader accused of causing the loss, goes
before a London judge today and may enter a plea before his case
is transferred to a higher criminal court.

For Related News and Information:
For top finance news: FTOP <GO>
More news on Goldman Sachs: GS US <Equity> CN <GO>

--Editors: Frank Connelly, Edward Evans

To contact the reporter on this story:
Elena Logutenkova in Zurich at +41-44-224-4101 or
elogutenkova@bloomberg.net

To contact the editor responsible for this story:
Frank Connelly at +33-1-5365-5063 or fconnelly@bloomberg.net