Brexit accelerates an epic transformation in European finance which will deepen the divide between the big winners and losers in asset management, Beat Wittmann writes exclusively for finews.first.


finews.first is a forum for renowned authors specialized on economic and financial topics. The texts are published in both German and English. The contributions appear in cooperation with Pictet, the Geneva-based private bank. The publishers of finews.ch are responsible for the selection.


Brexit has triggered another round of sharp declines in European banks’ share prices. These are currently trading at their lowest price-to-book values ever, and the banks are still in need of more capital as they are unable to generate the necessary revenues. Worst of all, they have on average increased their equity capital fourfold, but in almost all cases good money has been thrown after bad, mostly without fundamentally changing their business model or strategy.

Even eight years after the major financial crisis of 2008, there is still overcapacity in the European financial sector. Unlike in the US, where over the weekend of September 13/14, 2008 the relevant US policymakers (FED, Treasury, and SEC) unilaterally told the leaders of the most important US banks what to do, the individual European countries have still not done this.

As a result, European economies have posted anemic growth, and no healed and competitive banking sector has emerged.

«This stems from the fact there were high barriers to entry»

As regards positioning and value propositions, the financial industry could learn something from the consumer goods and airline industries. If you are considering buying a Rolex or a Swatch, you clearly know that you will get either a prestige watch at a premium price or a competitively priced quality watch. The same holds true in the airline business: for premium you might choose Swiss, and for discount EasyJet.

The key problem in the financial industry is that most players have for a very long time gotten away with charging high fees for services of average quality and ‘me too’ products.

This stems from the fact there were high barriers to entry and the tailwind of a 30-year moderation in interest rates and rise in risk assets. Sharply increasing competition among too many players with similar value propositions will eventually result in consolidation and disruption.

«Despite their large captive sales channels, these have suffered big outflows»

The asset management industry serves as a particularly illustrative example for the growing divide between winners and losers. There has been an increasingly two-pronged development among winning companies, featuring on the one side large-scale companies such as Vanguard with a relentless focus on cost, and on the other side specialist companies such as Oaktree Capital and Partners Group or multi-boutique firms such as Affiliated Managers Group (AMG) delivering superior results for clients and shareholders.

However, the vast majority of asset managers in Europe are still asset management units of banks. Despite their large captive sales channels, these have suffered big outflows due to sub-par offerings and performance. And if even the well-positioned UBS has been unable to reverse a trend of rising costs and falling revenues, you can imagine how truly bad most others’ asset management units have done and are still doing.

«In the asset management space, the winners will be leading providers of passive products»

I expect that two key developments will accelerate the transformation of the traditional business models in the European and Swiss asset management industry. One is the upcoming implementation of MiFID II, the other the fast-increasing replacement of underperforming and expensive actively managed products with cost-efficient passive financial products. And as Europe is still lagging well behind the US with regard to the market penetration of passive funds, we can expect the market share of the leading US providers of passive products to continue to rise strongly.

In the asset management space, the winners will be leading providers of passive products‎, top-performing specialist firms, and multi-boutique houses. The asset management units of banks will remain at the losing end, as too many of them are chasing too little organic growth with too similar value propositions, and have yet to move on from the transactional business of product production and sales to become fiduciary managers for their clients.

In the banking business, the winners are leading US financial institutions, who are gaining market share in the US and in Europe. Unlike their European competitors, they have fully rehabilitated balance sheets and clearly positioned business models and consistent strategies. Take J.P. Morgan vs Deutsche Bank or Goldman Sachs vs Credit Suisse, for example. The two comparisons speak volumes.


Beat Wittmann has been chairman and partner of Zurich-based financial advisory firm Porta Advisors for exactly one year. His more than 30-year career in Swiss banking includes stints at both UBS and Credit Suisse as well as Clariden Leu and Julius Baer. He operated his own firm from 2009 to 2015, first independently and more recently under the Raiffeisen Group.


Previous contributions: Rudi BogniAdriano B. Lucatelli, Peter Kurer (twice), Oliver Berger, Rolf Banz, Dieter Ruloff, Samuel Gerber, Werner Vogt, Claude Baumann, Walter Wittmann, Albert Steck, Alfred Mettler, Peter Hody, Robert Holzach, Thorsten Polleit, Craig Murray, David Zollinger, Arthur Bolliger and Beat Kappeler, Chris RoweStefan Gerlach, Marc Lussy, Samuel Gerber, Nuno Fernandes, Thomas Fedier und Claude Baumann.