Regulatory changes mean Swiss banks are going to have to compete on equal terms in the global marketplace.
For small financial firms, the FATCA legislation is a daunting compliance problem. The bigger institutions are more likely to have the resources to deal with its demands. Even so, the banking sector is facing significant consolidation.
Jaeger, who advises the Swiss government on its FATCA negotiations with the US authorities, says the new regulatory environment will cause many of the smaller banks to merge with other bigger banks. Others will simply ‘liquidate'.
He expects the Swiss banking sector, currently more than 350 strong, to consolidate by up to one-third.
Some of the biggest banks are assigning significant resources to dealing with FATCA, in the hope of being able to offer FATCA compliance services to smaller entities.
The implications of such an aggressive and extra-territorial body of legislation have caused a storm of protest throughout Europe, prompting demands to renegotiate terms. The US authorities are unfazed, noting simply that if the Europeans are willing to negotiate, that must also mean they are willing to accept the principle of FATCA.
Each country has been negotiating to defend its own interests. Among the Swiss, Jaeger says, the hope is they will be able to negotiate ‘carve-outs', or exemptions. Three negotiating rounds remain this year, with a sign-off expected by the year's end.
Changes already under way are new rules affecting the practice of ‘retrocessions', or rebates on new business given to fund managers. The move is part of a drive for greater transparency, but it is also likely to address the perception that fees in Switzerland are far too high, affecting performance.
Inevitably, too, the drive for transparency and the loss of banking secrecy is causing many clients to be more demanding of their wealth managers.
Now Switzerland has to compete on an equal basis, Jaecklin says, the options are clear: "When Switzerland is no longer a tax shelter, clients will interact much more with the adviser, or go elsewhere."
The prospects for swiss private banking
The mood in Switzerland may be gloomy, but the outlook for the private banking sector is not wholly negative.
Peter Damisch forecasts low to moderate growth of 2% by 2014 for the Swiss domestic business. Assets booked in Switzerland from Western Europe is forecast to drop by 28% to CHF623bn, with a fall in revenues of 50%, but this will be balanced out by new business from ‘new world' clients. Boston Consulting Group estimates growth in ‘old world' (Europe, US and Japan) private wealth in 2009-11 to have slipped by 1%, compared to the ‘new world's' increase of 10%. But, in absolute terms, old world assets have grown from $85.7trn to $89.2trn, while new world assets have grown from $27.2trn to $33.6trn.
By 2016, BCG projects annual growth in private wealth of about 4%, to reach $150trn. The old world will grow from $89trn to $97trn (growth of 1.7%). The new world will benefit from strong GDP growth, accelerated wealth accumulation, moderate global market recovery and constant consumption and saving rates, pushing assets from $34trn to $54trn, or growth of 9.7%.