Surprisingly, Swiss and Liechtenstein banks are back on the prowl for wealthy private clients in Germany even though a first foray into that market at the turn of the millennium didn't end well. finews.com takes a look at what is different this time.
The announcements are coming in almost daily but no one is paying much attention. Swiss and Liechtenstein banks are trying to push into the business with high-net-worth clients in Germany.
At times, the number of people involved makes it look like a concerted market foray.
Ex-Credit Suisse Bankers
The Zurich Cantonal Bank made headlines recently by recruiting two ultra-high-net-worth bankers from Credit Suisse. The intent is to use them to build a bridgehead for cross-border business in Germany after it gained a so-called simplified exemption procedure and easier market access to the country last year.
The St. Gallen Cantonal Bank has had a branch there since 2009 although it just launched a new unit for key clients. In total, it currently employs about 70 people in Munich and Frankfurt and it is looking to add more.
Big Steps
In contrast, the Liechtensteinische Landesbank (LLB) has reached its stated personnel objectives by hiring four client advisors in Dusseldorf. In the space of a few months, it has managed to hire about 40 advisors and executives at its Frankfurt, Munich, and Dusseldorf locations. It is following the path of LGT, which returned to the German private banking business in a big way in 2023.
The opening of a branch in Frankfurt marks its fourth branch in the country.
Making Waves
The hiring wave aimed at experienced bankers working at various competitors in the country has already made waves. «Swiss and Liechtenstein private banks push into the German market», one of the country's main business newspapers, «Handelsblatt», (original language only) wrote last September. According to the publication, the banks are focusing on the country's renowned Mittelstand entrepreneurs, or SMEs, given many are currently considering a so-called liquidity event, as the financial industry calls it – the sale of their companies.
From a Swiss perspective, the current run in Germany seems surprising. The first wave of expansion took place in the 2000s when industry mainstays – UBS, Credit Suisse, the former Bank Sarasin, Julius Baer, and Vontobel – entered the market.
Subsequent Retreat
But the onshore strategies from back then didn't age well and the German branches often had profitability issues. That led to several retreats. Credit Suisse sold its private banking business in 2013 to Germany's Bethmann Bank. After years of restructuring, UBS finally started earning money on its business in Germany in 2020.
Things haven't necessarily become easier for foreign players since. The simplified exemption procedure has been there since 2014 and currently, several domestic players benefit besides the Zurich Cantonal Bank, among them private bank Maerki Baumann (also based in Zurich) and Lucerne's Reichmuth & Co.
The Big But
Industry dogma continues to hold up Germany as the largest wealth management in Europe and something that Swiss players can't afford to ignore. But the new era of clean money and heightened compliance makes the whole thing a much tougher proposition.
According to industry veteran Franz-Josef Lerdo, there are clear barriers to entry. A German citizen, he knows the ins and outs of the private banking market in his own country as well as the domestic one, having headed Dresdner Bank (Switzerland) at one point. «Foreign players are up against the private banking business of major banks such as Deutsche Bank and Commerzbank as well as the locally anchored wealth management activities of regional saving banks and state banks», he answers, when asked by finews.com.
Disappearing Margins
On top of all that comes the specialized German private banks. «They have at least the same amount of know-how when it comes to managing clients holistically as Swiss institutes do», he maintains.
The revenue picture is also decidedly challenging. «Margins in German private banking have probably shrunk recently», Lerdo believes. He is currently working as an independent consultant for financial institutions. According to him, years ago, banks could earn about 1 percent on managed assets but that number is now closer to 0.7 or 0.6 percent.
The 20 Billion Minimum
The only way banks can fight against that is by having enough scale, he says. «You have to be of a certain size to have a profitable business in onshore private banking in Germany. That threshold is about 20 billion euros in managed assets.»
LGT's approach of going big is probably the right thing to do in that context. When asked, the Principality's largest bank refused to disclose the level of assets it managed since its foray into Germany. «We are very pleased with developments and profitability at our new locations in Germany», a spokesperson maintained, adding that LGT has both an offshore and onshore business related to Germany and that the offering has been well received by clients.
Significant Revenues
«Our clients greatly appreciate the ability to diversify and invest assets in different countries and currencies.»
The offshore business with wealthy German clients is material for Swiss institutions, even in this era of clean money. That clearly shows up in St. Gallen Cantonal Bank's numbers. According to a spokesperson, the parent and local German branches together managed about 8 billion francs in assets in the middle of last year. At the time, that was about 13.8 percent of all assets under management.
The EU Worry
The onshore business is the smaller part, contributing 2.8 billion francs. However, it has clear strategic importance as a fully licensed gateway on German soil.
Many observers believe that is another reason for the business foray into Germany from Switzerland. Fully licensed subsidiaries are guaranteed to be able to keep market access. The worry is a clear one. Bankers are concerned about the EU's efforts to regulate banks more uniformly, something that could lead to the exemptions being dropped.
Different Scenarios
If that were to happen, that would be the end of easy market access and any Swiss or Liechtenstein bank wanting to remain in Germany would need to have a local subsidiary.
That line of thought is something that the St. Gallen Cantonal Bank spokesperson seems to have in mind when asked. The German branch is the only subsidiary of a domestic cantonal bank that provides the services of a Swiss booking location. The simplified exemption allows the bank to actively work the market of its northern neighbor out of Switzerland. «We are well prepared for all future scenarios.»
