Clarity on Swiss Private Banks

The high interest rate environment since 2022 has boosted profits, and strong financial markets in 2024 boosted assets under management (AuM). This enabled Swiss private banks to generate the highest level of AuM since we began our study. Below the surface is a number of sustained challenges, however.

As the boom from interest income declined significantly in mid-2024, banks were able to replace lower interest income with higher commission income on the back of strong markets. Looking ahead, it is this core commission income business where they must focus their efforts.

The HSG undertook an analysis of Swiss private banking business models for our study, and found two clearly successful models for higher and sustained profitability.

At the same time, consolidation has picked up. From 85 Swiss private banks at the start of 2024, we expect fewer than 80 to remain by the end of 2025. Last year also saw the largest Swiss private banking deal for more than a decade as Safra Sarasin acquired Saxo Bank.

"It's time to refocus on the core client business as it is commission income that should sustain banks’ profits. Banks must also consider whether their business model is fit for purpose or it’s time to sell."

Christian Hintermann
Partner, Financial Services

Clarity on Swiss Private Banks

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What to expect

Key Messages

1. Number of private banks & M&A

2. Diversification strategies of private banks: Geographic footprint and service offering

3. Do Switzerland’s private banks create shareholder value?

4. Operating Profitability stays close to 2023’s historical high

5. AuM: Driven by market performance

Key messages

A strong year as commissions offset lower interest income

Almost two-thirds of banks reported a worse cost-income ratio last year. Despite the fall in interest income that had ballooned in 2023, 40% of banks are strong and all of these achieved a cost-income ratio below 70%.

The number of weak banks with a cost-income ratio above 90% rose by half to 15, however. As the benefit of the interest environment declines and we see potentially negative interest in Switzerland, banks need to focus again on how to grow and develop their core commission business.
Most banks do not cover their cost of equity

Only 31% of banks achieved an RoE that exceeded their cost of equity in 2024. Doing so requires a cost-income ratio well below 80%. Adjusted for the high level of excess capital in the industry, 42 banks exceeded their cost of equity.

With the existing high level of excess capital and what seems to be a lack of investment and growth opportunities, banks distributed 80% of net profits to their shareholders over the past five years.
Niche or global: the most successful business models

Two business models are most successful for higher and sustainable profitability. One model is a large bank with a significant international presence and comprehensive service offering.

The other is a smaller bank based mainly in Switzerland with a very focused service offering. Most of Switzerland’s private banks need to gravitate towards one of these models, and the challenges inherent in such a transformation could lead to further exits.
AuM hit a record high; NNM falls short of expectations

Median AuM growth of 13% last year led to the highest level of industry AuM since we began our study, thanks to positive market performances.

The biggest contributor to AuM growth in the past five years was NNM, though at CHF 72bn in 2024, it fell far short of 2021’s record CHF 131bn. Six of the eight largest Swiss private banks achieved positive NNM in every one of the past five years. Only 41% of medium-sized banks and 32% of small banks did the same.
As consolidation returns, fewer than 80 banks will remain

While the number of deals is still low, the significant acceleration in consolidation deals follows a few years of stagnation and should lead the number of Swiss private banks to fall from 85 at the start of 2024 to below 80 by the end of this year.

Expectations that the first year of additional regulatory requirements would trigger a high number of deals in the independent asset manager space did not materialize.

Number of private banks and M&A

From 85 banks at the start of 2024, we expect there to be fewer than 80 by the end of 2025 thanks mainly to domestic consolidation.

Internationally, larger Swiss private banks continued to streamline and improve their competitive offerings through deals in the UK, Denmark and Brazil, including perhaps the most fascinating deal last year – Safra Sarasin’s acquisition of Saxo Bank, which ranked as the largest Swiss private banking deal in the past 10 years.

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Outlook

The fall in interest rates puts downward pressure on banks’ net interest income, and overall margins are expected to remain under pressure. We anticipate this will cause bank owners to reassess their M&A strategies, leading to an uptick in M&A activity over the course of 2025.

In brief, we expect larger banks to stand ready on the buy side, with an eye on small and medium-sized banks that may come to market.

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Diversification strategies of private banks: Geographic footprint and service offering

The HSG Institute of Management and Strategy research team analyzed whether and how geographic and product diversification over the 2015 – 2024 period impacted Swiss private banks’ performances.

The conclusion was clear: there are two business models that are prerequisites for higher and sustainable profitability. One is to be a large bank with a significant international presence and comprehensive service offering. The other is to be a smaller bank based only in Switzerland with a very focused service offering.

HSG Analysis

Read the full analysis, incl. methodology

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Diversification strategies of private banks

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Do Switzerland’s private banks create shareholder value?

This year for the first time, we decided to analyze whether banks are creating shareholder value. We did so by estimating their individual cost of equity and comparing it to their return on equity (RoE). Only 31% of banks achieved a higher RoE than their cost of equity.

Almost two-thirds of banks reported a decline in RoE in 2024 although the median remains historically strong. Lower interest rates hit small banks the hardest, with a fall in RoE from 9.3% to 7.5% in 2024.

This is a clear sign that many banks may lack the scale to be profitable, or have adopted business models that are not able to generate sufficient profitability and growth.

Find out more about strategy and a discussion around business models in our Study

Spread between cost of equity and RoE in 2024

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Operating profitability stays close to 2023’s historical high

The end of the interest wave began to impact banks’ performances last year, with nearly two-thirds of banks reporting a worse cost-income (C/I) ratio than in 2023. Ranging from 37.2% to 119%, C/I ratios continue to vary greatly between banks. Strong banks were the only cluster that managed to lower their C/I in 2024.

The distribution of performance clusters remained broadly in line with 2023, which was the strongest year on record. The main changes were that the number of Upper mid banks fell by five, while the number of Weak banks grew by five.

Weak banks’ C/I rose from 92% to 102%, while that of Upper mid banks increased by 2.1%, and Lower mid banks by 3.3%. This is a sign of the impact of falling interest rates. Strong banks were the only ones able to further reduce their C/I ratio in 2024, from 61.7% to 58.6%.

Read our publication for more insights

Number of private banks by performance cluster

AuM: Driven by market performance

Industry AuM in 2024 was the highest since we first published our report, with banks posting median AuM growth of 13%. Over the past five years, large banks added CHF 390bn to AuM, medium banks CHF 127bn, and small banks CHF 37bn.

NNM was the biggest driver of this growth, adding CHF 415bn to industry AuM over the five years. While NNM generation varied significantly by individual bank, the largest banks have fared consistently better, with six out of the eight achieving positive NNM in every one of the past five years.

Aggregated AuM development 2020 – 2024

With the significant year-on-year impact of financials markets and FX, we analyzed the drivers of industry AuM growth over the past five years.

While individual years saw performance (including currency movements) often having the greatest impact, huge swings in performance (the largest positive being CHF 335bn in 2024 versus the largest negative being CHF 406bn in 2022) largely balance out.

Average percentage of clients domiciled outside Switzerland

In order to determine what approximate percentage of banks’ clients are domiciled outside Switzerland (“offshore clients”), we looked at customer deposits as a proxy.

The analysis showed around 30% Swiss residents and 70% offshore clients. The proportion of offshore clients has fallen over the years, mostly due to the strong Swiss franc.