GIA In the Media

GIA in the Media

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Swiss banks are failing to focus on performance

By Peter Scholla

Financial Times; Apr 26, 2003

Sir, "Fast. Efficient. Friendly" was the slogan of one of the larger Swiss banks ("Alps provide no shelter for Switzerland's private banks", April 24) in the late 1980s. No mention of "Performance. Reliable. Mistake-free."

The big criticism of Swiss private banking (and that of neighbouring German and French banks) is that management failed - and often continues to fail - to focus on what a client pays the bank for: performance. Clients prefer to see the value of their accounts double and be handled by a slow, inefficient and unfriendly banker than see the value of their portfolio halved by a fast, efficient and friendly banker.

Fees from discretionary managed accounts provide the bulk of the earnings in the private banking business. If investment results remain below par, earnings go down and, worse, customers leave. For years, the prevailing thought among Swiss bank managers was: "So the client leaves. But where is he going to go? He goes to the banker across the street. Meanwhile, we pick up the client who leaves the bank across the street. For as long as the money stays within Switzerland and simply moves from bank to bank, our earnings will not fall and we will do fine."

The other two points of criticism are that product innovation tends to follow but rarely leads that of US financial service providers and that fees are far too high.

Swiss private banks have an admirable infrastructure in terms of well-trained people (the average cashier probably knows more about banking and investing than many stockbrokers I know in the US), conference rooms, and even computer systems (which - in contrast to most US systems - can run multi-currency portfolios and so on). But the error rate of Swiss banks is as high or low as that of US or British institutions and on the all-important performance question, Swiss private banks have not improved.

The day when management at these institutions begins to understand that sophisticated clients with money - in the final analysis - do not mind paying taxes as long as their capital grows at an acceptable rate year after year, that's the day when Swiss private bankers will see their business grow again. If, on the other hand, Swiss private bankers continue to try to sway clients with a great lunch or dinner in a nice setting along the Lac Leman or the Zurichsee, their business will continue to shrink.

Having said all that, I should point out that many clients are at fault too. Why did they let Swiss private bankers get away with poor investment results for so long? As a group, American clients ask their money managers much more sophisticated questions than their European counterparts. The solution that some of the more pro-active European clients have found is to combine the best of both worlds: keep custody of the assets at Swiss banks but have them managed by more pro-active and dynamic US money managers.

Peter Scholla, Global Investment Adviser
Palm Beach, FL 33480, US