McKinsey Private Banking Survey 208 Key insights about Switzerland
Currently, both developed and emerging markets experience synchronous growth in financial assets Personal financial assets ; CHF trillions 2022 207 Emerging markets Developed markets 207-22 annual projected growth North America 2.9 9.0 Latin America 6%. 3.0 7% Western Europe 2.8 0.8 % Middle East/ Africa 7.8 5.6 2..7 8% 7% Eastern Europe China 8% 9.7 5.8 Asia Pacific (excl. Japan and China) 0.5 7.2 % 5. 3%.3 Japan Global pool of ~CHF 55 trillion in personal financial assets (above USD million) in 207 Historic five-year growth rate of 6% is expected to continue until 2022 Some level of convergence in growth rates as APAC wealth growth is expected to decline from 2% to 9% Personal financial assets onshore (excluding life insurance and pensions) > USD million and offshore. Based on fixed FX rate. SOURCE: McKinsey Wealth Pools 208 update 2
Over the last decade, the profit pool of the industry only significantly grew in developing markets Indexed to 2007 Asia North America Western Europe MENA Profit pool growth 00-8% 66 +22% 76 00-9% +0% 6 05 00-7% +8% 7 02 +% +3% 7 00 290 2007 202 207 2007 202 207 2007 2 207 200 2 207 AuM growth 00 290 00 09 66 00 07 3 00 6 29 Business model Investment banks with primarily a brokerage business Emerging wealth management models Independent financial advisors and brokers Number of digital at scale (Schwab, Vanguard, Merill) Mature Private Banks, wealth managers and brokers Handful of digital models that scale International offshore banks Local universal banks start private banking offering Key considerations High trading affinity Significant share of wealth in China, which is difficult to access Broker-Dealer requires different operating model Regulatory sensitivities for Swiss banks given tax legacy Fragmented market with high level of competition Relatively high regulatory requirements High relevance of lending as part of proposition Brand affinity 3
Swiss profit pool increased in 207 driven by cost cuts and continued AuM growth Breakdown of profit pool Switzerland average; CHF billions Profit pool 7.0 7.5 7.8 7.9 8.3 Revenue margin Bps 88 88 87 85 85 Cost margin Bps 66 65 6 63 62 203 5 6 207 75 7 7 7 73 Performance impact in CHF Cost-income ratio, percent Asset growth Percent 0 5 0 5 0 203 20 205 2 5 5-3 6 206 207 Net inflow Performance impact
AuM growth in Switzerland primarily driven by performance Swiss profit pool evolution, 203-7; CHF millions B,05 8,279 6,96 A 80 85 Profit Pool 203 Profit Margin Net Inflow Asset Performance Profit Pool 207 ; McKinsey Wealth Pools 208 update 5
A 00 Revenue margins continue to be under pressure, requiring banks to become ever more cost efficient Margins, Switzerland; bps 97 96 80 39 33 88 2 85 23 88 89 88 88 22 2 22 23 87 23 85 85 22 23 Revenue margin Profit margin 60 58 63 6 62 66 68 66 65 6 63 62 Cost margin Cost margin is at a low 0 2007 08 09 0 2 3 5 6 207 60 Cost-income ratio 73 6
A Revenue margin evolution is driven by deposit margin decrease and wealth band mix Revenue margin evolution, Swiss average; bps 88 ESTIMATE ~ 85 ~ ~ ~ ~2 ~2 203 margins Deposit margin Mandate margins Wealth band mix Lending Mandate mix Other effects 207 margins Pricing innovation (incl non-financial services), price realization, others 7
A Banks have been able to continuously lower their cost margins, but absolute costs are increasing Evolution of cost pool, Indexed, 203-207 CAGR 203-7 (%) Cost margin, bps 66 62 07 00 Front office 50 53.9 Middle office 8 8 2. Back office 3 5. 203 207 8
B Increasing divergence in net inflows, with PB arms of universal banks that start to outgrow Average net inflow, 203-7; percent 203-7 207 Distribution of net inflows, 203-7 Universal Bank onshore 3.5.3 55 50 5 76% 2% 2% 0 Foreign bank onshore 3. 3.6 35 30 25 20 5 Independent bank onshore 3. 2.0 0 5 0 3-5 Offshore 0.8.5-0 ~2/5 of Swiss players with net outflow 9
B Within Western Europe, Switzerland stands out with low net inflow figures Net inflows, Western Europe; percent of previous year AuM 207 203 Iberia 6 8 Global Offshore Centers UK 5 Hong Kong 0, Germany 0 5 Singapore 6, Italy France Netherlands Luxembourg -2 0 2 3 3 Luxembourg Monaco Switzerland -0,,8 0,7 Belgium Austria 2 3 Western Europe +3% +2% Switzerland, 207 Offshore -2 Switzerland Onshore 3 0
The landscape will continue to change Deep dive Regulatory Clients Competitors Trends Wave of tightened regulation on client servicing (e.g. MIFID II/ FIDLEG, AEI) currently being deployed, full impact yet to be seen Additional regulation of mid- and back-office (e.g., data, ops risk) drives additional efforts Change in service preferences (more remote), with a willingness to experiment Better informed clients with new reference points, e.g., online/web, community Higher price sensitivity High competition between established players Continued consolidation in the market New competitors tap into lower end of market, with plans to move upmarket Pace of disruption in wealth management business expected to be faster in next 5 years compared to disruption observed in last 0 years
To be successful in the long-term, private banks need to make bold moves Key levers Examples Business model innovation Innovation of the business model to better serve existing or also new clients can help to accelerate growth, e.g., transforming the existing or creating an attacker business 2 Scale Scale in AuM, for instance through M&A, is a key driver for faster growth and better profitability; smaller players will struggle to expand the profit pool 3 Digitization of the core Development of E2E digital solutions and digitization of processes to increase customer satisfaction and reduce the cost-to-serve 2