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Switzerland Commercial Banking Report Q3 2012 - New Market Research Report

Recently published research from Business Monitor International, "Switzerland Commercial Banking Report Q3 2012", is now available at Fast Market Research


Boston, MA -- (SBWIRE) -- 07/17/2012 -- BMI View: We reiterate that Swiss banks will continue to face significant challenges in the coming quarters, which will weigh on their asset growth and profitability. In addition to tougher regulatory requirements, a precarious global growth outlook, and the ongoing eurozone sovereign debt crisis, many Swiss banks now face the additional risk of indictment by the US authorities over aiding tax fraud. In line with our long-held view that the Swiss banking sector is set to face a growing number of challenges in the coming years, we believe that the sector's growth and profitability will remain weak in the coming quarters. The tough regulatory framework imposed on Swiss banks combined with an increasingly weak macroeconomic backdrop, and severe global growth risks stemming from the ongoing eurozone sovereign debt crisis have already weighed on the country's two largest banks, UBS and Credit Suisse, which collectively own around 52% of total assets, in recent quarters. As many of the global risks which weighed on these banks in 2011 remain unresolved, we believe that financial market volatility, and increasing calls for the Swiss government to loosen its strict banking secrecy laws (as many cash-starved countries seek to clamp down on tax evasion), will further harm the sector's profitability. Adverse Conditions Weigh On Grossbanken Both UBS and Credit Suisse posted weak results in Q411, with the latter posting a CHF637mn loss for the quarter (compared to CHF841mn profit in Q410) and the former seeing profits decline 76% y-o-y to CHF393mn (from CHF1.7bn in Q410). Credit Suisse's full-year net profits were CHF2.0bn and UBS's were CHF4.2bn. Both banks blamed market volatility, increasingly risk averse clients and the banks' attempts to keep up with regulatory and capital requirements as reasons for the weaker performance. In addition, the depressing effect of the Swiss franc's strength throughout 2011 has continued to weigh on both banks' overseas earnings. Indeed, this subdued profitability reinforces our long-held view that the Swiss government's insistence that Swiss banks raise large amounts of capital in order to bolster the nation's banking sector stability, would ultimately harm profitability. While under Basel III banks will be required to move towards holding 10.5% of total capital (7% of which must be common equity), the Swiss government's decision to implement significantly more stringent capital requirements on its banks, requiring them to hold 19% in total capital (10% of which must be common equity) will continue to weigh on profits. As we expect both Grossbanken to continue to restructure, looking to exit several of the more risky business lines and seek to further reduce risk-weighted assets, we reiterate our view that Switzerland's largest banks are set to continue moving away from proprietary trading in the coming years, and seek to focus their business towards private banking and asset management. While

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