Not Even Rothschild Can Buck the Swiss Gloom

(Bloomberg Opinion) -- Gone are the glory days of Swiss private banking, when even little-known firms could lure mountains of cash from all-comers, helped by the nation’s veil of financial secrecy. These days, not even the Rothschild brand can prosper comfortably.

On Wednesday, Benjamin de Rothschild announced plans to take the family’s Swiss bank private, allowing it to combine the company’s various entities and simplify its legal structure. This, he says, should be taken as a sign of the firm’s “ambitions for growth, both organic and through acquisitions.”

Buried at the bottom of the same press release was a more prosaic description of the reasons behind the reorganization. With the outlook for the 2019 remaining cautious, the firm needs to freshen up its product offering and reduce costs.

Credited with financing the Suez Canal and the Duke of Wellington’s victory at the Battle of Waterloo, the Rothschild family brand clearly stands a cut above the rest. Yet the reality for them and the many smaller players they still compete with is that profitability has been squeezed and shows little sign of recovering in this low-rate environment.

What’s more, rules on the automatic exchange of information have made Switzerland a less attractive destination for cash that doesn’t really need to earn a return. In 2015, Edmond de Rothschild (Suisse) SA was among the 80 or so Swiss firms that paid penalties to the U.S. for helping Americans hide money from the Internal Revenue Service.

These days, firms have to offer investment gains, not just a safe place to park funds. They also need strong balance sheets to lend to clients. For all the consolidation that has already happened, those banks that remain will probably need to grow to survive, while others will be eaten up and some will disappear.

Last year, Edmond de Rothschild’s clients pulled 2.5 billion Swiss francs ($2.2 billion) while assets under management dropped 7 percent to about 128 billion francs. Expenses climbed, and operating profit fell 6.5 percent to 222 million francs.

Rothschild isn’t alone in finding it difficult to lure new money. The last few months of last year were brutal for those needing client funds. EFG International AG, the wealth manager controlled by Greece’s billionaire Latsis family, warned on Wednesday that inflows this year remained weak, according to AWP.

Survival of the fittest has already seen the number of Swiss private banks shrink by a third since 2010 to just over 100, according to accounting firm KPMG. Expect that shrinkage to continue. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.

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