Banking Barometer 2009

September 2009
Banking Barometer 2009
Economic Trends in the Swiss Banking Industry
2009 Banking Barometer
Economic Trends in the Swiss Banking Industry
Contents
Inhaltsverzeichnis
Executive Summary
2
1
Macroeconomic trends
1.1
Global economy
1.2
Swiss economic performance
1.3
Special topic: the financial crisis and its consequences
4
4
5
6
2
Capital markets
2.1
Interest and exchange rates
2.2
Equity markets
8
8
9
3
Bank profits
3.1
2009 profit performance
10
11
4
Balance sheet and credit business
4.1
Balance sheet business
4.2
Credit business
13
13
14
5
Managed assets
5.1
Performance of managed assets in 2009
17
19
6
Employment in the banks in Switzerland
6.1
2009 employment survey of the Swiss banks
20
21
This report was commissioned by the Swiss Bankers Association and prepared at the end of August
2009 by BAK Basel Economics (authors: Alexis Körber, Urs Müller, Martina Schriber and Thomas
Stocker).
SBA Banking Barometer 2009
1
Executive Summary
The economic environment in 2008 was exceedingly difficult for banking. Out of the credit crisis in
the USA came a global financial crisis that produced a worldwide economic crisis by the end of the
year. Under these circumstances, it is not surprising if the profits of the banks in Switzerland declined
by almost one third and managed assets by one quarter. Credit demand still managed to remain positive thanks to lower interest rates. The numbers employed by the banks also continued to expand
pleasingly in 2008. In the current year however, the situation is rather different: : whilst the recovery
on the equity markets is having a positive impact on bank profits and managed assets, a survey by the
Swiss Bankers Association points to a slight decrease in jobs. In the first half of 2009, staff levels fell
1.7% and most banks also expect a dip in the numbers employed for the second half of the year.
Bank profits down in
2008
In 2008, banks in Switzerland definitely felt the effects of the financial crisis.
Profits fell by 31% to close on CHF 49 bn or their lowest level since 1997.
Big losses in trading (CHF 8.1 bn) were the main cause of this tumble but the
striking decrease in profit from the commission business (-19%) also contributed. In the conventional interest-earning business, a decline was also recorded (-7%), but this is solely due to the big banks.
Signs of recovery in
the current year
At the beginning of the current year, the financial crisis worsened still further
and the mood of investors touched rock bottom. This led to a further decline
in the trading and commission businesses. However, the recovery of the equity markets since March 2009 gives hope of a positive change in the trading
business and an improvement in the asset management profit situation in the
second half of 2009. In the interest-earning business on the other hand, falling profits are to be expected because of the poor economic situation and
low margins.
Lower balance sheet
L
total
In the wake of the financial crisis, the balance sheet total of the banks in
Switzerland fell markedly last year, down 11%. The globally restricted interbank business produced a decrease of 19% and 23% respectively for bank
receivables and liabilities to banks. The trading portfolios of securities even
fell by 58%. due to lower valuations and write-offs.
Robust demand for
credit
The demand for credit lost some momentum last year because of the economic downturn. Despite this, total lending was again higher at the end of
2008 by a good 3%, standing at CHF 845 bn. The historically-low interest
rates are a major factor here. During the current year, demand for credit
should increase only slightly compared with the previous year.
Managed assets
shrank because of
stockmarket slide
The financial crisis left its mark not only on bank profits and the balance
sheet; Assets under management, as measured by the securities portfolios held
in client custody accounts, also fell in 2008, by a quarter. Equity holdings
and collective capital investments (investment funds) posted the biggest losses
(-38% and. -29%) because of poor stocks and funds performances and increased risk aversion. Bond holdings declined less (-7%). The banks in Switzerland as a whole were still managing customer assets amounting to CHF
4.0 trillion at the end of 2008 (end 2007: CHF 5.4 trillion).
SBA Banking Barometer 2009
2
Assets growth in the
first half of 2009
Thanks to the recovery of the equity markets, managed assets in the first half
of 2009 grew again, by 3.6%. As in the previous year, there were asset outflows from one major bank to the other banks. At the end of the year, managed assets will probably be higher than at the end of June; however, this depends on whether the positive mood that has returned to the stockmarkets
will last.
Slight rise in number
of bank employees in
2008
Despite the poor business performance, banks in Switzerland increased their
staffing levels by 1.2% in 2008, having already grown 4.4% in the previous
year. This means that at the end of 2008 there were just over 110,000 fulltime posts in the Swiss banking centre. The private bankers and the Raiffeisen banks were the prime contributors to this growth in employment,
whilst the big banks started their previously-announced staff cuts (-1,143
full-time posts).
Around 2% fewer full- According to the survey of the Swiss Bankers Association (SBA), the employment trend in the banks in Switzerland has reversed this year: total staff
time posts by end
levels fell by 1.7% in the first half of 2009 compared with the end of 2008,
2009
according to the survey. So the financial crisis and the negative profit situation are indeed impacting employment, but with a certain lag. The SBA survey indicates that the slight reduction in jobs will continue in the second half
of 2009. Overall, employment in the Swiss banking centre is expected to
shrink by over 2% in the current year.
SBA Banking Barometer 2009
3
1
Macroeconomic trends
After the dramatic falls of the 2008/2009 six month winter period, the global economic downturn has
lost momentum these last few weeks. The present trends towards stabilisation can be attributed
mainly to cyclical factors and the strong fiscal stimuli. Final private consumer demand on the other
hand still appears decidedly weak. The financial crisis also represents considerable damage to the
Swiss economy. Given the economic recession under way since the 3rd quarter of 2008, real gross
domestic product in the first half of 2009 was 2.1% below the level of the previous year. The pattern
of recession has slowed substantially however since the 2nd quarter of 2009. On the other hand, the
strongest downturn on the labour market is believed to be still to come.
1.1
Global economy
Global economy
experiences deepest
recession of post-war
period
The global economy is in the strongest recession since the Great Depression
of the 30s. As a result, the shortfall in demand associated with the US real
estate market and the financial crisis since autumn 2008 spread across the
entire globe at breakneck speed. The process was considerably accelerated by
the international linkages between the financial markets and the very sophisticated geographical dispersion of the international value creation chains. In
addition, there were problems, especially in Asia at first, with the financing of
trade credit. In the wake of these developments, global trading volume in the
1st quarter of 2009 fell 17% compared with the previous year, a phenomenon particularly noticeable in the big export-oriented economies such as Japan, Germany and China.
Figure 1-1
Real Gross Domestic Product,
% change vs. previous year
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
US A
E uro Zone
J apan
Employment,
% change vs. previous year
2.5%
US A
2.0%
E uro Zone
J apan
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-0.5%
2006
Source: OEF, BAK Basel Economics
Headlong descent lost
momentum in 2nd
quarter
Figure 1-2
2007
2008
2006
2007
2008
Source OEF, BAK Basel Economics
However, the worst appears to be over. According to current indicators, the
headlong global economic descent of the 2008/2009 six-month winter period
has lost momentum during the last few months. China and other emerging
Asian economies recorded a higher pace of growth again in the 2nd quarter
of 2009. And some major industrialised countries such as Japan, Germany
and France were able to achieve slight growth again between April and June
2009, starting from the very low level of the previous quarter. The sustainability of the present pattern of recovery has still to be tested however. Given
the underused production capacities worldwide, there is a strong risk that the
present stimuli, sustained mainly by inventory cycles and public spending
programmes, will fade before private demand revives. The global economy
could also sink back into lethargy after a short upswing.
SBA Banking Barometer 2009
4
1.2
Swiss economic performance
Swiss economy in
recession
The Swiss economy cannot escape the negative impacts of the financial crisis
on the real economy. Given the negative economic performance compared
with the previous quarter that has existed since the 3rd quarter of 2008, real
gross domestic product in the first half of 2009 was 2.1% below the corresponding value for the previous year. The deeply recessive global economic
environment during the first six months of 2009 heavily impacted exports of
Swiss goods and services (real -13.2% compared with the previous year). At
the same time, Swiss companies made substantial cuts in investments in view
of the grossly under-utilised capacities and flat sales outlook.
Figure 1-3
Figure 1-4
4.0%
3.0%
3.0%
2.5%
2.0%
2.0%
1.0%
1.5%
0.0%
1.0%
-1.0%
0.5%
-2.0%
0.0%
-3.0%
-0.5%
2007Q1
Source:
Switzerland coming
through the crisis better than many other
industrialised countries
Real GDP, Switzerland,
% change vs. previous year
seco
Q3
2008Q1
Q3
2009Q1
2007Q1
Source:
Employment in Switzerland,
% change vs. previous year
Q3
2008Q1
Q3
2009Q1
BFS
All in all however, the recession in the Swiss economy has so far been less
severe than in most other industrialised countries. It has been assisted by the
fact that the Swiss economy does not have to struggle with speculative excesses on the real estate market. Other helpful factors are the solid financial
shape of private households and the robust labour market compared with
other countries. But the number of people in the labour force fell in the 2nd
quarter of 2009 (-0.3%) for the first time in six years.
Negative trend reaches The negative labour market trend is expected to intensify during the next few
labour market
quarters. This applies particularly to 2010, when the instruments currently
supporting the labour market, such as short-time working and the elimination of overtime, come to an end.
First signs of economic Yet from a general economic point of view too, the worst appears to be over
stabilisation
for Switzerland. According to the State Secretariat for Economic Affairs
(SECO), the downward trend already lost pace in the 2nd quarter of 2009.
For the sections of export-oriented industry that have been particularly affected so far by the global fall in economic demand, there are encouraging
signs that things will soon stabilise. In August 2009, the Swiss Purchasing
Managers Index, at 50.2 points, reached the expansion threshold of 50 points
again for the first time in a year.
SBA Banking Barometer 2009
5
1.3
Special topic: the financial crisis and its consequences
From subprime crisis
to current recession
The present global recession is to a certain extent a cyclical cooling down,
which was to be expected after a five-year boom. Triggered by the American
subprime crisis, the worldwide financial crisis has now produced the biggest
recession in the global economy for 60 years. The banks have frequently been
in the economic hot seat : the lack of trust on the interbank market, the falling real estate and share prices and the bailout of the banks in not a few
countries are issues that spring to mind.
Figure 1-5
Bank earnings and SPI, 1988-2008
80
Earnings
70
SPI adjusted
60
50
40
30
20
10
0
1988
Source:
Effects on the Swiss
banking centre
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
SNB, Six Swiss Exchange
But – conversely – what are the consequences of this recession for Switzerland as a banking centre ? The above graph shows the extent to which bank
profits correlate with stockmarket trends. But in 2008, the fall in profits was
very large, at close to one third. This can be attributed to the results from
trading, a business that has become increasingly important over the last 20
years. Because the big banks are especially active in this field, they have suffered badly in recent times, whilst the other banks have largely survived the
crisis well. Because of the confidence issue, especially in relation to one of the
two major banks, the cantonal and regional banks have been able to a certain
extent to acquire customers. But the overall picture does not seem very pleasant at the moment. With rising stockmarket prices however, the situation will
recover very quickly, as the half-year results from the American investment
banking sector clearly demonstrate.
Combating the finan- The financial and economic crisis evoked strong political reactions worldcial crisis leads to
wide. The fiscal stimuli amounting to a record estimated CHF 1,400 bn and
fragile global economy the massive monetary policy interventions by the central banks seem gradually to be biting. Some current indicators (the stockmarkets for example) and
recently real economic activity variables as well (such as changes in GDP in
some industrialised countries) are already moving up. In the medium term,
the economic stimulus packages, because of the enormous burden on the
public purse, will gradually give way to measures to save money. In addition,
because of the hugely expanded money supply, there is a latent risk of inflation, which the central banks will counter sooner or later by raising interest
SBA Banking Barometer 2009
6
rates. If consumers and investors do not believe in the “state-induced” upswing, there is the threat of a new setback (double dip).
Loan defaults will
increase
Such a scenario would also place an additional burden on the banks. Although in Switzerland so far, most of the institutions with an interest-earning
business have come through unscathed, there could be a risk of a gradual
increase in credit portfolio defaults. Rising interest rates or an economic
downturn could also cause similar problems in Switzerland, especially in relation to corporate credit. Fortunately the real estate market in Switzerland, in
contrast to many other countries, is robust.
Swiss current account
surplus down 83%
The present crisis is also clearly reflected in the Swiss current account. Here
the losses are much bigger than they are in the Swiss banks. The current account balance in 2007 and 2008 (i.e. during the years of the financial crisis)
declined by over CHF 60 bn (or 83%). An analysis of the data shows that
this fall is not due to the cross-border trading of goods and services, but to
the balance sheet factor and specifically the item relating to direct investment
income, which has fallen in the last two years by a good CHF 60 bn. This
dramatic decline is primarily due to the absence of earnings repatriation from
foreign subsidiaries (USA for one) to their Swiss parent banks. A trend reversal is now already clear here too.
Figure 1-6
Current account in CHF bn, 1983-2008
80
Current account
Factor income
60
Direct investments
40
20
0
-20
-40
1983
Source:
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
SNB
Asset management in The consequences of the present crisis for the medium-term development of
Switzerland faces chal- the Swiss banking centre are difficult to assess. For the moment the question
lenges
remains open as to how the softening of bank-client confidentiality and the
conclusion of the OECD-compliant double taxation agreements will affect
the cross-border asset management business.
SBA Banking Barometer 2009
7
2
Capital markets
Swiss interest rates have declined markedly compared with the level before the worsening of the financial crisis. That is also true of the initially considerably higher risk surcharges on the interbank
market, although the levels are still above average. The Swiss franc appreciated significantly in the
wake of the financial crisis. However, the upward trend was interrupted by the interventions of the
Swiss National Bank. The stockmarkets have been recovering since March, after falling to the early
2003 level during the bearish movement that lasted around 18 months.
2.1
Interest and exchange rates
Definite decline in risk Swiss interest rates have declined markedly since the financial crisis worsened
in late summer 2008. However, there was a big difference here, particularly
surcharges on interat the beginning, between the individual risk classes. Because of the massive
bank market
uncertainties between September and November 2008, especially on the interbank market, risk surcharges were considerable (see Figure 2.1). Fortunately, conditions since the start of 2009 have definitely picked up. But the
three-month Libor in mid-August 2009 was still around ten basis points
above the level of 0.25% targeted by the SNB since the end of March.
Figure 2-1
Money market credit spreads, difference between three-month Libor and
three-month overnight swap rates (TOIS) in % points
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2008-08-13
Source:
Swiss federal bond
yields down further
since end June
2008-10-13
2008-12-13
2009-02-13
2009-04-13
2009-06-13
SNB, Thomson Datastream
The flight to secure forms of investment and the massive deterioration of
business expectations also caused a marked fall in Swiss federal bond yields
compared with the values before the crisis worsened. Between April and June
2009 however, there was a rather strong upward movement with the first
signs of a stabilising of the economy. For example, 10-year bond yields during the period under review rose from around 2.1% to around 2.5%. Although the signs of an economic revival have grown stronger during the last
few weeks, Swiss federal bond yields in mid-August 2009 were still 40 basis
points below the previous annual highs.
SBA Banking Barometer 2009
8
Swiss franc appreciated during financial
crisis
In the wake of the financial crisis, the Swiss franc has already markedly appreciated since November 2007. Its trade-weighted external value had increased by around 10% by March 2009, mainly attributable to significant
appreciation against the euro (+11%). However, the upward trend was interrupted by the SNB announcement of intervention on the currency markets in
order to prevent a further appreciation of the Swiss franc against the euro.
Thus at the time of writing the value of the Swiss franc against the euro was
around 4% lower than during the March highs. On the other hand however,
the dollar and the yen depreciated considerably, so the decline in the tradeweighted external value of the currency between March and August was actually insignificant (-0.5%).
2.2 Equity markets
Worsening banking
crisis rattled stockmarkets
With the failure of the Lehman Brothers investment bank in September 2008,
the financial crisis in the USA worsened and spread like lightning to the rest
of the world. Several financial institutions had to be rescued with government
emergency packages worth billions. The confidence of investors in the banks
had disappeared, panic was widespread and share prices collapsed worldwide. Both the SMI and the Stoxx50 in the Eurozone, and the Dow Jones in
the USA, underwent a 40%-45% correction in the six months between September 2008 and March 2009. This brought the share indexes back to their
early 2003 level.
Switzerland, Europe,
USA: stockmarkets
bearish for approx. 18
months
Figure 2-2
Stock exchange indexes (3 January 2003 = 100)
200
S MI
Dow J ones Indus trial
180
S toxx50E
160
140
120
100
80
60
Jan 03
Source:
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
SNB, Stoxx and Dow Jones
Signs of recovery since After the financial crisis triggered a worldwide recession, the first positive
March
signs surfaced on the financial markets in March 2009. Since then, an upward movement has been observed, which can be attributed to the costcutting measures taken by companies, to the very low share prices and to
public spending to shore up the economies. The real economy may still be in
crisis, but the stockmarkets seem to have come through it. Whether this recovery continues depends on how long the tendency of the global economy to
stabilise is capable of lasting.
SBA Banking Barometer 2009
9
3
Bank profits
The heavy impact of the financial crisis can be clearly discerned in the 2008 profit figures of the
banks: the profits1 of the banks in Switzerland shrank by close on 31%, when the 2007 decline had
not been more than 3%. Big losses in the trading business are primarily responsible for this fall, but
also the negative performance of the commission business. In the conventional interest-earning business too, a decline was recorded, caused by the major banks. For the current year, a slightly improved
profit level can be expected in the trading and commission businesses. Credit on the other hand is
suffering from the economic crisis and low margins.
Fall in bank profits in
2008
The profits of the banks in Switzerland as a whole decreased last year by
30.8% – the biggest fall since the introduction of SNB bank profit statistics
over 20 years ago. The worsening of the financial crisis in autumn 2008 contributed decisively to the result for the year, which came out worse than expected even in summer 2008. The huge falls in the price of securities caused a
considerable loss to the trading business of the banks. Moreover, market conditions for the commission and services business deteriorated markedly, leading to a considerable downturn in this activity. Total bank profits fell to CHF
49 bn in 2008 and were thus at their lowest level since 1997.
Figure 3-1
Profits performance by banking activity, in billions of CHF
80
70
60
50
40
30
Other ordinary profit
Trading business profit
20
Commission business profit
Interest-earning business profit
10
0
-10
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: SNB
Bleak performance of
trading business
1
The trading business, which had already been caught up in the turbulence on
the financial markets in 2007, continued to deteriorate throughout 2008. The
upsets on the capital and equity markets, which reached rock bottom last
autumn, led the trading business to the edge of collapse. For the first time,
the whole banking sector in Switzerland suffered a loss on this business activity (CHF 8.1 bn). However, the major banks were almost exclusively responsible for this state of affairs, their investment strategies having produced a
deficit of CHF 10.6 bn in the trading business in 2008. And most of the other
banking groups – with the exception of the private bankers – had to put up
with the negative performance of this business.
Bank profits are defined as revenues minus expenses in the four business activities. Bank profits less staff and operating
expenses makes gross operating profit.
SBA Banking Barometer 2009
10
Profit share of the big
banks down markedly
Figure 3-2
Profits by banking group 2007
Regional and
savings banks
3%
Raiffeisen Privatbankiers
banks
6%
Cantonal
3%
banks
12%
Foreign banks*
19%
Figure 3-3
Profits by banking group 2008
Regional and
savings banks
4%
Raiffeisen
banks
5%
Private
bankers
6%
Cantonal
banks
16%
Big banks
29%
Big banks
46%
Foreign banks*
25%
Other banks
13%
* including subsidiaries of foreign banks
Source: SNB
Other banks
15%
* including subsdidiaries of foreign banks
Source: SNB
Financial crisis leaves
its mark on commission business
Although the commission and services business was still able to make a positive contribution to growth in 2007, in 2008 it was also affected by the upsets on the financial markets. Profits from this activity fell 18.5% to CHF
30.0 bn - a bigger tumble than in the crisis year of 2001. The biggest decline
in profit in the commission business – due mainly to the stockmarkets – was
recorded in the securities and investment business. All the banking groups
had to put up with lower profits in the commission business, the big banks
being most affected. Yet these institutions still account for nigh on half of this
activity in Switzerland, and asset management, despite the difficult profit
situation, is still the most important source of profit for the banks in Switzerland.
Big banks squeeze
interest rates
In the conventional interest-earning business, profit was cut by 6.7% to CHF
21.4 bn in 2008, a result attributable to the performance of the big banks (26.1%). On the other hand, retail banking in the other banking groups benefited from the still positive economic situation in Switzerland and the strong
demand for credit. The biggest increases in the interest-earning business were
recorded by the foreign banks in 2008.
3.1 2009 profit performance
Deterioration of situa- The current year began turbulently for the banks: The share price fall seemed
tion
not to be able to find solid ground and the mood of investors was at rock
bottom. This not only depressed investment banking profits greatly, but priin 1st quarter 2009
vate banking and asset management profits too. The extremely difficult market environment in autumn 2008 deteriorated further in the following
months, and confidence in the banks was severely dented. The continuing liquidity concerns of the financial institutions had a noticeable effect on private and corporate customer business. In the 1st quarter of the year, commission earnings from abroad were 29% below the previous year.
Easing of stockmarkets
in 2nd quarter 2009
The recovery on the financial markets since March 2009 has had a positive
effect on the profit situation in the trading business and in investment banking, such that in the 2nd quarter no further losses from these activities were
reported. Asset management also benefited from the bullish movement on the
equity markets. But the mood of investors improved only slowly, as is demonstrated by the lower profits from the commission business compared with
the previous year. Performance-dependent commission in particular – despite
SBA Banking Barometer 2009
11
the share price recovery – posted a fall compared with the previous year,
caused by the more cautious pattern of trading behaviour on the part of investors.
Poor interest-earning
business
In contrast to the same period the previous year, for some institutions the
interest-earning business also developed negatively during the first half of
2009. Yet the half-year results of some banks recorded a positive profit trend
for the interest-earning business, which can be explained by the continuing
high level of credit demand.
Outlook for second
half 2009
Trends on the financial markets and the risk appetite of investors will be the
factors that determine bank profits in the coming months. The share price
recovery and unexpected improvement in corporate results in the 2nd quarter
lend credence to hopes of a stabilising of the equity markets by the end of the
year. Although the banks have had poor trading and commission business results for over a year, the prospects for the second half of 2009 are more upbeat. Even if the bullish trend of the last few weeks were to be corrected, the
mood of investors is expected to lift. Thus the banks also have an opportunity to improve their profits from trading and asset management. However,
the high risk appetite evident during the boom years has not yet returned to
the majority of customers. Moreover, despite the fact that risk has been taken
out of their business, the odd risky investment by the banks on various markets is still on the books and could again cause trouble for investment banking. Profits from asset management and the trading business should therefore
recover only slightly.
For the credit business on the other hand, the outlook for the next few
months is not very pleasant. Credit defaults caused by the economic crisis
could increase, and margins will not recover quickly. For these reasons, and
because the economic downturn and the rise in unemployment have still not
been overcome, the credit business will face falling results.
Summing up, developments during the first half and the outlook for the second half point to a negative performance in the credit business for 2009 as a
whole, whilst the trading business is expected to produce a positive result and
the commission and services business to be flat.
SBA Banking Barometer 2009
12
4
Balance sheet and credit business
The balance sheet total of the banks in Switzerland declined last year by a striking 11%, down to
about CHF 3,080 bn. On the assets side, the worldwide financial crisis has left a definite mark. The
restricted level of interbank business led to a 19% reduction in bank receivables and trading portfolios of securities even fell by as much as 58%. Among the banking groups, the big banks especially
posted a substantial fall of 20% in the balance sheet total in 2008. The demand for credit in Switzerland lost momentum last year because of the economic downturn. Despite that, lending as a whole
rose again by 3.2% to CHF 845 bn at the end of 2008. In the difficult economic environment, it was
the cantonal banks that profited especially, because the volume of credit they granted grew at a higher
than average rate. During the current year domestic credit demand is expected to weaken further, but
nonetheless to be up on the previous year.
4.1 Balance sheet business 2
Severe contraction of
balance sheet total
Assets and liabilities of
the Swiss banks at end
2008
As a result of the worldwide financial crisis, in 2008, the aggregate balance
sheet total of the banks in Switzerland fell more than at any time since records began in 1945. Given the 10.9% decline, the new balance sheet total at
the end of 2008 was CHF 3,079.6 bn. This marked shrinking process is
mainly attributable to the foreign positions. Here both assets (-17.6%) and
liabilities (-15.8%) fell substantially. In 2008 the picture was not uniform
with regard to the domestic positions. Although liabilities also declined
(-3.0%), assets increased slightly by 2.7% despite the difficult economic environment.
Figure 4-1
Breakdown of assets, end 2008
Cash
4%
Other assets
16%
Securities
7%
Mortgage
loans
23%
Customer
receivables
19%
Bank
receivables
26%
Source: SNB
Assets: clear traces of
the financial crisis
2
Figure 4-2
Breakdown of liabilities, end 2008
Other
liabilities
15%
Equity finance
5%
Liabilities to
banks
24%
Money market
liabilities
3%
Debentures
and bonds
8%
Money market
receivables
5%
Other
liabilities to
customers
33%
Savings and
investment
liabilities to
customers
12%
Source: SNB
The loss of confidence between the banks last year led to a vastly reduced
level of interbank business; consequently, bank receivables fell 18.9%. Trading portfolios of securities fell by 58.3% primarily because of lower valuations and a withdrawal from positions. In contrast, a marked rise was recorded in cash, which at the end of 2008 was 343.1% above the 2007 value.
This is because the banks’ assets with the Swiss and foreign central banks
have increased, rising in 2008 to CHF 115.5 bn (2007: CHF 20 bn).
The balance sheet business gives some insight into the sources of refinancing (liabilities) and the breakdown of bank receivables (assets). The balance sheet is of interest especially for the interest-earning business.
SBA Banking Barometer 2009
13
Liabilities: much
switching of customer
investments
The liabilities side shows that more customers put their trust in savings
(+7.0%), sight deposits (+15.2%) and medium term bank-issued notes
(+22.4%) last year. Time deposits (-23.1%) have also become less significant
because of the unfavourable pattern of interest rates. Altogether in 2008 liabilities to customers fell 8.1% and liabilities to banks declined even more (23.6%).
Table 4-1 Balance-sheet totals by banking groups, 2007 and 2008
Number of
banks
Balance sheet total
(bn CHF)
Increase/decrease in
balance sheet total
2008
2007
2008
2007
2008
Cantonal banks
24
356.6
389.3
3.9%
9.2%
Big banks
2
2'341.1
1'885.3
6.5%
-19.5%
Regional and savings
banks
75
85.3
89.9
-0.7%
5.4%
Raiffeisen banks
1
123.1
131.6
8.0%
6.9%
180
487.8
519.1
18.8%
6.4%
123
288.8
331.7
20.8%
14.8%
31
34.4
23.7
45.6%
-31.1%
14
29.5
40.7
59.0%
37.8%
327
3'457.8
3'079.6
8.3%
-10.9%
Other banks
Of which foreign
banks
Branches of foreign
banks
Private bankers
Total
Source: SNB
Big banks have lower
balance sheet totals
The decline in the balance sheet total can mostly be attributed to the big
banks with international business activities; in 2008 the balance sheet total
was 19.5% lower than at the end of 2007. A similarly strong decline was
recorded by the branches of foreign banks (-31.1%). The other banking
groups maintained a higher balance sheet total throughout, the private bankers showing the biggest increase in percentage terms (+37.8%).
4.2 Credit business 3
Higher credit demand
despite economic
slump
3
The credit volume statistics provide information about the financing of the
real economy by the banks. Last year, total credit take-up grew 3.2% to CHF
844.5 bn at the end of the year. Compared with previous years, this equates
to a slightly weaker growth in credit demand. Given the clouds on the economic horizon in the second half of 2008, credit volume still turned in an extremely solid performance and, from the available data, a credit crunch is not
on the cards. The continuing high level of credit demand was also caused by
the favourably low level of interest rate for customers. Mortgage lending,
The SNB revised the credit volume statistics at 31 March 2009. For the 2009 Banking Barometer this leads to the following
changes compared with previous data: building loans are no longer collected and reported. The only new positions are mortgage lending and customer receivables. With regard to credit take-up, the gross bank receivables will now be reported instead of the balance sheet values as previously. The change is backdated to November 2001. The new reporting obligations
of the banks were introduced as of March 2009. Those banks whose domestic loans to non-banks exceed CHF 280 m are
required to file reports. For this reason, for all banks taken together, there is a relative change from February to March 2009
in mortgage lending of +0.5% and in customer receivables of +0.7%.
SBA Banking Barometer 2009
14
which accounts for 80% of total credit volume, grew 3.6% in 2008 - as
strongly as in the previous year. Other customer credit receivables on the
other hand grew only slightly (1.6%).
Bank loan take-up in
Switzerland
Figure 4-3
Trend in take-up of loans in Switzerland by type, CHF bn
900
Customer receivables
800
Mortgage loans
700
600
500
400
300
200
100
0
2002
2003
2004
2005
2006*
2007
2008
2009 06
* From 2006, all 411 Raiffeisen banks are included in the statistics. Previously only 34.
Source: SNB
Big banks lose market
share
The big banks are the leading lenders in Switzerland and in 2008 they
achieved a market share of 38%. However the loss of confidence, among
other things, led to weaker growth in the demand for credit from the big
banks than from the other banking groups. Total lending of the big banks
therefore rose only moderately in 2008 (0.4%). The lost market share went
mostly to the cantonal banks, which were able to increase their credit volume
by 4.4%. The regional banks (+4.1%) and the other banks (+3.9%) also
benefited from the fact that UBS was heavily affected by the financial crisis.
Figure 4-4
Breadkown of lending by type of
loan, end 2008
Figure 4-5
Customer
receivables
20%
Other banks
24%
Breakdown of lending by banking
group, end 2008
Cantonal
banks
31%
Regional
banks
9%
Mortgage
loans
80%
Source:
Continuing personal
credit need
SNB
Big banks
36%
Source:
SNB
Private households, which account for the biggest proportion of the demand
for credit, had increased their borrowing by 2.2% to CHF 552.6 bn by the
end of 2008. Among private companies too, demand increased substantially
again in 2008 (7.7%). In contrast, the credit volume of the public sector fell
(-11.1%).
SBA Banking Barometer 2009
15
Table 4-2
Domestic credit volumes by sectors, in mill. CHF
Credit volume
Households
Share in 2008
Private companies
No fall in credit demand in first half
2009
Total lending
(in mill. CHF)
Change from
End of 2008
previous year
552'616
2.2%
65.4%
256'543
Share in 2008
30.4%
Public sector
35'346
Share in 2008
4.2%
Total
1
1
844'505
Mortgage loans
(in mill. CHF)
Change from
End of 2008
previous year
517'994
3.4%
76.8%
7.7%
142'873
4.7%
21.2%
-11.1%
13'786
-0.7%
2.0%
3.2%
674'653
3.6%
Loans taken up according to credit volume statistics
Source: SNB
The deep recession experienced by the Swiss economy in the first half of 2009
scarcely had any effect on domestic credit demand and even the slight tightening of the credit conditions of certain banks did not produce any drop in
the credit volume. It grew in the first six months by 2.8%4 (First half 2008:
2.0%). One reason for the continuing robust credit demand is doubtless the
low interest rates in most credit segments, which led to a rate of growth
(+3.1%) - primarily in mortgage lending - in the first half of 2009 well above
the level of the previous year (+1.7%). Customer receivables grew somewhat
more slowly, increasing by only 1.6%.
In the second half of 2009, despite the fact that the economic outlook continues to be very overcast, no fall in credit volume is to be expected. Interest
rates in the major credit segments remain at a level attractive to customers
and small increases can only be expected in long-term interest rates. According to current estimates, the increase in the total credit volume of the banks
in Switzerland in 2009 should be about the same as the previous year.
4
Because of the amended SNB reporting requirements, the credit volume statistics (see Page 14) include a level effect of 0.5%
in the 2.8% credit growth recorded in the 1st half of 2009.
SBA Banking Barometer 2009
16
5
Managed assets
Measured by the yardstick of the security portfolios held in client custody accounts5, managed assets
fell in full year 2008 by one quarter. Equity holdings and collective capital investments suffered considerably from the bearish stockmarkets and lost a substantial proportion of their value. Thanks to
the recovery on the equity markets, managed assets in the first half of 2009 rose by 3.6%. Moreover
as in the previous year, there was an outflow of assets from one big bank to the other banks. If the
mood of investors does not turn persistently negative again, managed assets by the year end will
probably be higher than at the end of June.
Big decline in managed
assets in 2008
According to last year’s issue of the Banking Barometer, expectations regarding the performance of managed assets in the second half of 2008 were too
optimistic. The scale of the upsets on the stockmarkets and investor panic in
autumn 2008 were however hardly foreseeable. The worsening of the financial crisis deeply impacted the security portfolios held in client custody accounts in the banks in Switzerland, which fell by 25.7% in full year 2008. In
the previous year, despite the beginning financial crisis, there was still a rise
of 7.7%. At the end of 2008, the banks as a whole managed customer assets
amounting now to only CHF 4.0 trillion. In the second half of the year especially, the banks and their customers suffered from the extremely poor performances of shares and funds. For the biggest Swiss bank, in addition to the
impairment of assets, an outflow of funds also caused the value of managed
assets to fall.
Security portfolios held
on client custody accounts valued at CHF
4 trillion
Figure 5-1
Trends in customer security deposits, by type, in CHF bn
5'500
Other
Collective capital investments
Equities
Bonds
5'000
4'500
4'000
3'500
3'000
2'500
2'000
1'500
1'000
500
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Position at year end in each year
Source: SNB
Equity holdings under
tremendous pressure
At the end of 2008, equity holdings, at CHF 1.2 trillion, were 38.4% below
the level of the previous year, and the share of equities in the overall securities portfolios fell to 30% (2007 share: 36.7%). This form of investment
reflects most clearly the severe price falls on the stockmarkets (the SMI for
example fell 35% in 2008), which were also caused by increased risk aver-
5
Although to date there are no accurate statistics concerning managed assets in Switzerland, customer security deposits in bank
branches in Switzerland can be regarded as good indicators.
SBA Banking Barometer 2009
17
sion on the part of investors. The equity holdings of all types of investor –
private customers, commercial customers and institutional investors; domestic and foreign – decreased by at least a third, the decline being highest
among private customers (-44.3%).
Situation similar for
collective capital investments
After having had the highest growth rates for years, the “Share of collective
capital investments” category broke with the trend last year: collective investments (= investment funds) shrank in 2008 by 29.0%. The investment
fund share of the total securities portfolios held in client custody accounts
amounted to 30% (2007: 31%) in value. Fund holdings showed bigger falls
among commercial customers and private customers than institutional investors.
Bonds more stable
Because of the increased risk aversion, bonds last year acquired greater significance in client custody accounts: their share of total securities grew from
23% to 30%. The downward trend of recent years was thus brought to a
halt. In value, bond holdings at the end of 2008 were nonetheless 6.8% below the level of the previous year, because foreign customers invested more
heavily in money market papers. The decline in value among foreign customers amounted to 11.1%. Among domestic customers the value of the investments fell by only 2.9%, caused solely by the investment behaviour of the institutional investors, who reduced their bond holdings by 6%. Fearing rising
interest rates (and thus lower valuations) the institutional investors shifted
some of their holdings from bonds into cash investments such as money market papers.
Foreign customers own
56% of all asset deposits …
Figure 5-2
Domestic,
institutional
27%
Pattern of asset deposits by type of
customer, end 2008
Figure 5-3
Foreign,
private
18%
Other
6%
Foreign,
commercial
4%
Domestic,
commercial
6%
USD
22%
… and recorded the
biggest falls
SNB
CHF
47%
Foreign,
institutional
34%
EUR
25%
Domestic,
private
11%
Source:
… and by type of currency,
end 2008
Source:
SNB
The managed assets of foreign customers shrank more - down 28.4%, primarily currency-related - than those of domestic customers (-22.0%). They
fell from CHF 3.1 trillion at the end of 2007 to CHF 2.2 trillion at the end of
2008. Because they represent 56% of the securities in Switzerland however,
they are still very significant. Euro and USD-denominated deposits declined
slightly more than deposits in CHF, which can primarily be explained by the
lower valuation of the currencies. The share of the Swiss franc as an investment currency grew correspondingly by 45% to 47%.
SBA Banking Barometer 2009
18
Fiduciary deposits6
The fiduciary deposits managed by the banks, which do not form part of the
banks’ securities custody accounts, in 2008 fell 20.8% compared with the
previous year and therefore declined less than the securities in customer custody accounts. One of the main reasons was the regrouping of investments in
the banks. Fiduciary deposits at the end of 2008 amounted to around CHF
380 bn, 99% of which was money from abroad invested especially in USD
and EUR.
5.1 Performance of managed assets in 2009
Further setbacks at
start of year
At the beginning of the current year, managed assets reflected the effects of
the continuing financial crisis. In the 1st quarter, they suffered a decline of
2.8%. The equity markets reached rock bottom in March, a fact that was
reflected in a decrease in the equity holdings in client custody accounts of 8%
in the 1st quarter.
Improvement at the
mid-year
The easing of the financial markets since March also had a positive effect on
the performance of managed assets. At the end of June 2009, the value of the
securities in client custody accounts were 3.6% higher than at the end of
2008. The good stockmarket performance from March to June meant that
equity holdings in the first half of 2009 as a whole grew by 4.4%. A continuing positive trend was observed in bond holdings : they grew by 6.2% over
the half year, due especially to foreign customers. The positive performance
of fixed-interest investments is attributable on the one hand to the lower interest rates, which increase the valuation of the securities; on the other hand,
the need for secure investments played a part.
Asset shifts continue –
but no net outflow of
monies
As regards new monies in the first half of 2009, there were further shifts between the banks. UBS was forced to witness considerable net outflows of
monies, whilst Credit Suisse and several private banks, cantonal banks, Raiffeisen banks and foreign banks reported inflows of new monies. An estimate
of the net change in new monies is difficult, but in the banks in Switzerland it
is probably close to zero.
Probable rise in managed assets by year
end
The future performance of assets depends heavily on the performance of the
international financial markets. Assuming that the most recent, very positive
trend on the stockmarkets will undergo a slight downward correction, but
the mood of investors will not become more negative, managed assets in
Switzerland will probably be higher at the year end than at the end of June.
6
Fiduciary operations include transactions (loans, investments, shareholdings), which the bank makes or grants in its own
name, but on behalf of and for the account of and at the risk of a customer.
SBA Banking Barometer 2009
19
6
Employment in the banks in Switzerland
Despite the financial crisis, the banks in Switzerland raised their staff levels last year by 1.2%. This
means an increase of 1,323 full-time positions in the Swiss banking centre. Moreover there was strong
growth in the number of persons employed by the private bankers (+10.7%) and the Raiffeisen banks
(+6.3%). Not surprisingly, the big banks, rattled by the crisis, reduced their staffing levels substantially (-2.6%). According to the survey of the Swiss Bankers Association (SBA) however, the financial
crisis is now impacting bank employment in Switzerland. The numbers employed in the banks in
Switzerland fell in the first half of 2009 by 1.7%. As is also clear from the staff survey, decreases in
jobs must be expected to continue in the Swiss financial centre. According to the SBA survey and the
industry’s own appraisal of the economic situation, a decline in employment of more than 2% is to be
expected in 2009.
2008 : employment in
the Swiss banking
sector grew despite the
financial crisis
At the end of 2008, employment in the banks in Switzerland amounted to
110,143 full-time equivalents. Compared with the previous year, this was an
increase of 1.2% despite the worldwide financial and banking crisis, so that
employment growth reached the level forecast in last year’s Banking Barometer. However, the staffing level of the Swiss banks abroad fell by 6.4%,
whilst in Switzerland 1,323 net new full-time equivalent posts were created.
Compared with other financial centres, the trend in Switzerland was very
positive in 2008 : in London, employment in the banking sector fell strongly
and there was also a slight decline in New York.
Just over 110,000 fulltime equivalent posts in
Swiss banking sector at
end 2008
Figure 6-1
Bank employees in Switzerland, end of the year, 1,000s
115
110
105
111.9
107.1
108.8
108.0
110.1
106.9
104.5
100
95
104.2
99.5
99.5
100.6
2003
2004
2005
90
85
80
75
70
65
60
55
50
1998
1999
2000
2001*
2002
2006
2007
2008
* From 2001 Full-time equivalents
Source: SNB
Private bankers and
Raiffeisen banks lose
substantial number of
employees
Employment among the banking groups in Switzerland was very diverse last
year. The foreign banks with 1,571 full-time equivalent posts created most
new jobs in percentage terms (+7.8%), the private bankers also grew
(+10.7%), the Raiffeisen banks (+6.3%) raised their staffing level considerably and the regional banks and the savings banks posted growth in the numbers employed again (+3.3%) for the first time since 2000. On the other
hand, there were bigger job cuts because of cost-cutting measures and re-
SBA Banking Barometer 2009
20
structurings among the big banks, where the number of full-time equivalents
fell by a net 1,143 - equivalent to a decline in employment of 2.6%.
Big banks still clearly
the biggest employers
The big banks, despite the massive job cuts in 2008 were still by far the most
important employers in the Swiss financial centre. Around 39% of bank employees work for one of the two big banks. In recent years, the Raiffeisen
banks and the private bankers have grown continuously in importance as
employers, a trend that last year became even clearer.
Figure 6-2
Employment by bank group
1990-2008
300
Figure 6-3
Regional
banks, savings
banks
4%
Raiffeisen
banks
280
260
Private
bankers
240
220
Other banks
200
180
Total
Employment by bank group, end
2008
Raiffeisenbanken 7%
Private
bankers
4%
Cantonal
banks
15%
Foreign banks
20%
160
140
Cantonal
banks
120
100
Big banks
80
60
40
Regional and
saving banks
90
92
94
96
98
00
02
04
06
Other banks
11%
Big banks
39%
08
Note: Foreign banks including branches of foreign banks
Source: SNB
Indexed: 1990 = 100
Source: SNB
6.1 2009 employment survey of the Swiss banks
Decline in employment in the current
year
The annual SBA employment survey7 of banks in Switzerland shows a definite decline in the numbers employed for the first half of 2009. The number
of full-time equivalents in Switzerland fell between 31 December 2008 and
30 June 2009 by 1.7%. The absolute net decrease was 1,784 full-time equivalents, of which 3,766 were arrivals compared with 5,550 departures.
Table 6-1
In full-time
equivalents
Switzerland
8
Staff levels in Switzerland and incoming and outgoing staff in first half of 2009
Position at
Dec. 31
2008
107,014
Position at
June 30
2009
105,230
Trend in 1st half of 2009
Incoming staff
Outgoing staff
Increase
as a %
3,766
5,550
-1,784
-1.7%
Number of replies: 306
Source: SBA survey
7
331 banking institutions in Switzerland were surveyed on 30 June 2009. There was a 92.4% response rate to the question
about staffing levels and arrivals and departures. These survey results are therefore representative. On the questions about
staff levels and change in numbers employed in the various businesses, the response rate was between 21% and 30% and
therefore does not allow us to make any definite interpretation.
8
Staff levels at the end of 2008 were lower in the SBA survey than in the SNB statistics. The reasons for the disparity are that
the surveys do not cover exactly the same employment population, there is a difference in the timing of the survey and responses are imprecise. The validity of the responses concerning the changes in numbers employed in the 1st half of 2009 remains however, but the absolute level must be treated with due caution.
SBA Banking Barometer 2009
21
Staff cuts will continue Apart from the past and present staffing levels, the SBA survey also poses
in second half of year questions about expectations for the next six months9. The analysis of the
replies shows a rather negative appreciation of employment during the rest of
the year. Of the 18% of banking institutions surveyed which said that they
would like to further expand their staffing level, the vast majority are small
and medium-sized banks. On the other hand however, the bigger banks expect to stop taking on new people or even to continue to cut jobs. The comparison of survey results from the last five years also shows the pessimistic
mood among the banks regarding employment for the second half of 2009.
Judging from the SBA survey and the current appraisal of the economic situation by the banking industry, job cuts in the Swiss banking sector during the
rest of the year are set to continue and a decline in employment of something
over 2% must be expected for 2009 as a whole.
Figure 6-4
Employment trend to end 2009
higher
18%
no
response
8%
Figure 6-5
Survey results for change expected
2004-2009
100%
90%
80%
70%
lower
15%
60%
50%
40%
lower
about the same
higher
30%
20%
about the
same
59%
10%
0%
2004
Source:
Note:
Source:
SBA survey
2005
2006
2007
2008
2009
2nd halfof the year. Shares relate to survey responses.
SBA survey
-
Decline in employFurthermore, the survey results point to a reduction in the number of jobs in
ment in many business most banking activities. Especially in the trading business and in the back
activities
office, more institutions would definitely like to reduce employment levels
than create new posts. On the institutional side, only 9% of banks still answer that they have staff expansion plans, whilst according to the survey the
position in retail and private banking looks better. In the private banking sector especially, the banks expect good business and every third bank is considering expanding its staff. The answers for retail banking are not quite so optimistic but are stable. 74% of the banks answering the question expect no
change in the staffing level in this activity, 17.4% are thinking of expanding
and only 8.7% are considering cuts.
Table 6-2
Employment trend in 2nd half of 2009, by business sector
Total
Retail
Banking
Private
Banking
Institutional
business
Trading business and
other activities
î
è
èì
î
î
Number of responses: between 97 and 69 depending on business sector.
Source: SBA survey
9
Of the 331 banks surveyed 306 gave an estimate of changes in numbers employed for the next six months.
SBA Banking Barometer 2009
22
Swiss Bankers Association
Aeschenplatz 7
PO Box 4182
4002 Basel
Switzerland
T +41 61 295 93 93
F +41 61 272 53 82
[email protected]
www.swissbanking.org