Munich's V-Bank recently announced it would open an office in Zurich. It is probably just the start, research by finews.com shows.

The article in early October on finews.com that one of Germany's leading custodians was setting up shop in Switzerland caused quite a stir in local financial circles. For years, the market has been firmly under the aegis of a number of established providers. Then there is the fact that Richard Manger, undoubtedly a banker with deep Swiss industry expertise, is to head V-Bank's representative office.

Additional research by finews.com now shows that the new branch might even be something much more substantive. It looks like the Munich-based bank wants to establish a fully Finma-licenced custody bank and clarifications are currently underway with respect to that, as V-Bank head Lars Hille confirmed to finews.com. The key decision to go ahead or not will ostensibly be made at the end of November, likely on the 27th.

Links to the Eurozone

The plan is an audacious one. Not only is it surprising but entering the market is also not likely to be a walk in the park given the business environment. But it is also a very interesting step in that it provides the sector with a highly successful independent provider with a firmly established, German background.

It could help bring some movement into the general cost framework for external asset managers. On top of that, the bank has a clear link to the eurozone, where a substantial number of Swiss asset managers have clients.

The Profit Hurdle

The most important question for any custodian is how much money is needed to become profitable. In Zurich's financial circles, the talk is that it would take between 3 to 4 billion francs ($3.3 to 4.4 billion) as that is the amount that others have on their books. Experts also believe that this is achievable in three years and that it would take another two to three years beyond that for the business to become profitable.

Naturally, this is all speculation given that V-Bank is not letting anyone in on the specific details of its current plans. But experience also shows that it takes at least $3o million or so to establish a fully licenced bank in Switzerland and that money also has to be earned back at some point.

Large Market Potential

On the other hand, any business case also has to look at the market potential. According to a number of industry sources, there are about $8.5 trillion in client assets under management here, with about half of them coming from affluent individuals. Of the latter total, industry sources indicate external asset managers have about $550 billion booked with them – or about 13 percent.

A custodian with German roots would probably look at the market and assess that about $165 billion in assets are addressable, the experts indicate, which excludes money held in very complex structures or at very small asset managers as well as those deposited in Ticino or the French-speaking regions.

Intense Competition

Of the total market of $165 billion, it is more than likely that a new market entrant could get the $3.3 to $ 4.4 billion necessary to clear the first hurdle. That is particularly the case now given the background that external asset managers are increasingly driven by costs in the current competitive environment.

Given all this, it should certainly be very interesting to see what the powers that be at V-Bank decide to do at the end of November.