Scores of Swiss private banks recorded losses last year. A new study illustrates how dire the situation is for the wealth industry's tiniest players.

Swiss private banks stood back from dealmaking last year: consulting firm PwC counted seven transactions including the sale of Notenstein La Roche to Vontobel or the all-Genevan tie-up between rivals Gonet and Mourgue d'Algue.

This represents an easing: since 2002, at least seven wealth managers in Switzerland have sought transactions. To be sure, several including the sale of Bank am Bellevue, Banque Syz's evaluating its options, and Banque Degroof Petercam's Swiss unit are in the starting blocks.

Majority are Unprofitable

Fifty-two percent of Switzerland's small private banks were loss-making last year, according to a study released on Wednesday by PwC. The consulting firm's cut-off for small are those banks with less than $2 billion in assets.

The segment's gross margin dropped below 100 basis points for the first time – to 90. Lower managed assets, dissipating margins in wealth management, and lower loan volumes are behind the drop.

Varying Vigilance on Costs

The smaller banks also dropped their initial fervor at trimming fat, something banking experts first spotted last year. PwC said spending among the smaller wealth managers crept up again last year, resulting in a lopsided equation to revenue and leading to widespread losses.

Mid-sized firms – from $2 billion to $10 billion – were slightly more frugal and kept their spending in check. However, the middle segment couldn't keep revenue from tumbling, amid a drop in commissions and service fees. Larger firms (those with more than $10 billion) even lifted their margins by 2 basis points last year, according to PwC.

Throwing in the Towel

Overall, of course, Swiss wealth management is shrinking at the expense of rival centers like Dubai and Singapore. Swiss institutes have suffered client withdrawals – net – for years, while the industry's profitability has continued to decline (except a brief fillip in 2017 amid booming stock markets).

PwC called it a brief respite: the sector's net profit margin has melted to just 12 basis points – a historic low. Sixty percent of all firms suffered a drop in profit last year. The number of small, loss-making firms surged from one-fifth to 52 percent.

The consulting firm already predicted last year that many small private banks will no longer be able to withstand the industry downturn – they will give up eventually. The number of private banks in Switzerland will sink below 100, from roughly 130 today (and more than 300 in the industry's banking secrecy heyday).