Annual Report

Association of Foreign Banks in 2002 Organization

Board

Chairman Dr. Alfredo Gysi Chief Executive Officer, BSI Ltd., Deputy Chairman Reto A. Cavelti Managing Director and Senior Executive Officer for Switzerland, Citigroup Global Markets Limited, Branch, Zurich Deputy Chairman Peter Franz Braunwalder Chief Executive Officer and President of the Executive Committee, HSBC Republic Bank (Suisse) SA, Geneva Treasurer Paul Maibach Chief Executive Officer, Bank CIAL (Switzerland), Basel Claude-Alain Burnand Secretary of the Board of Directors, BNP Paribas (Suisse) SA, Geneva Eduardo Leemann Chief Executive Officer, AIG Ltd., Zurich Brunello Perucchi Chief Executive Officer, Banca Popolare di Sondrio (Suisse) SA, Lugano Hans Peter Brunner Chief Executive Officer, Coutts Bank (Switzerland) Ltd., Zurich Dr. Christian A. Camenzind Chief Executive Officer, Bank Sal. Oppenheim jr. & Cie (Switzerland) Ltd., Zurich Bruno Meier Spokesman of the Executive Board, Deutsche Bank (Suisse) SA, Geneva Maurice Monbaron General Manager, Crédit Lyonnais (Suisse) SA, Geneva

Auditors

Heinrich Speich Chief Executive Officer and Chairman of the Board of Management, Bank von Ernst & Cie AG, Zurich Ermanno Bianchi Senior Vice President, PKB Privatbank AG, Lugano Henry Fauche Senior Vice President, Bank CIAL (Switzerland), Geneva

Secretariat

Dr. Martin Maurer Secretary General Raoul Würgler Deputy Secretary General Daniela Hess Mühlbauer Administration as of 30 April 2003

1 Portrait

The Foreign Banks in Switzerland The Association of Foreign Banks in Switzerland The foreign banks in Switzerland are defined as: • Banking institutions structured according to Members of the Association of Foreign Banks in Swiss law and subject to Swiss bank supervi- Switzerland comprise foreign-controlled banks, sion, with a majority shareholder domiciled branches of foreign banks, foreign-controlled abroad or controlled by a foreign shareholder. securities dealers, fund managers and agents with They may be subsidiaries of foreign banks, majority shareholder domiciled abroad. The belong to foreign non-banking institutions or to Association was founded in 1972, and the secre- private persons. tarial offices are located in Zurich. • Legally independent branches of foreign bank- ing institutions, likewise subject to Swiss bank Number of member institutions supervision but with additional requirements. 100 foreign-controlled banks 12 foreign banks’ branches Foreign banks in Switzerland by legal structure 10 other financial service providers 99 subsidiaries of foreign banks (securities dealers, fund managers and 23 subsidiaries of foreign non-banking insti- agents, etc.) with foreign majority tutions and banks with private majority shareholder shareholder domiciled abroad 1 observer 25 branches of foreign banking institutions as of 31 March 2003 as of 31 December 2002 Apart from representing members’ interests The number of foreign banks in Switzerland toward the Swiss Federal Banking Commission, amounted to 147 as of 31 December 2002, so the and other state organs, that out of all the banks in Switzerland about the Association of Foreign Banks in Switzerland 41% are foreign-controlled. Most of the foreign participates in commissions and working groups banks in Switzerland are headquartered either of the Swiss Bankers’ Association, the Swiss in Zurich (71) or Geneva (48). Only Lugano is Funds Association SFA and other bodies. The otherwise significant in this respect (11), mainly Association of Foreign Banks in Switzerland is because most of the foreign banks in Switzerland competently supported in this work by numer- have a branch in the . ous representatives of its member institutes.

The majority of the foreign banks focus on Further information on the Association, its activ- asset management for private clients (Private ities and the role of the foreign banks in Switzer- Banking), as well as investment fund business. land is available at www.foreignbanks.ch. However, various foreign banks offer additional products and are also active in other market segments, in particular commercial credit and trading, as well as corporate finance and mort- gage business.

2 Report of the Board

2002 – the hangover continues tional status. The importance of for Switzerland cannot be overemphasized: The year under review brought no improvement. approximately 6% of the GDP is generated With ongoing stock market recession and a slack by asset management, most of which by far global economy, earnings declined again par- in the value-added intensive private banking ticularly among the asset management and trad- sector. As shown by a representative survey on ing banks. Tentative hopes of an upswing faded behalf of the Swiss Bankers’ Association, Swiss away as war plans loomed nearer and nearer. Nei- people are well aware of this: 90% of those asked ther consumers nor investors found any assur- regard banking as extremely important or at least ance in view of the resultant political and eco- moderately important for the Swiss economy. nomical insecurity. Even after completing the No greater importance is attached to any other Iraq invasion, this situation is no better as yet. sector. Earnings erosion was exacerbated by higher or Other countries also know the economic impor- at most unchanged costs.The cost reduction tance of private banking, however, and are trying measures introduced by many banks were not yet to build up their own market share in this seg- reflected in results for the year. There are limits ment. Apart from know-how and services quali- to such changes, however, and a good many banks ty, the most important success factors in pri- are confronted with a widening gap between vate banking are legal and tax conditions and expenditure and income. Costs follow their juridical stability. Since these are politically own laws – apparently independently of eco- determined, the battle for market shares is nomic developments as a whole. Material and largely fought at political level and in interna- human resource expenditures are largely treated tional organizations. It is to be feared – para- as fixed costs, not least due to ever-increasing phrasing Clausewitz – that regulation will be legal and supervisory requirements. In a time used as the continuation of competition with when the upswing in surveillance legislation is other means. contrasted by a stock market low, such cost rigid- ity may not allow survival. Individuality

Solitude vivifies – isolation kills The increasing importance of the political dimension was highlighted in particular last year Switzerland must uphold her international lead- with regard to private banking legislation: ership as a financial centre by defending and • Switzerland is to introduce a withholding tax increasing her advantages in this respect. regime on interest income of EU residents Although individuality is a success factor (see box 1), successfully opposing thereby the thereby, Switzerland cannot afford to disregard exchange of information clause strongly the harmonization of surveillance law with favoured by the EU Commission and some behaviour rules – otherwise she risks being iso- member states. While on the one hand this lated and marginalized. During the year under withholding tax regime will still guarantee review Switzerland often found herself walking Swiss banking customers protection of their this tightrope between integration on the one private sphere, it also prevents avoidance via hand and isolation on the other. Switzerland of tax on interest of EU residents. Switzerland is the global leader in asset man- Furthermore, this solution also has economic agement for private clients. No other bank- benefits because a withholding tax regime is a ing service contributes nearly as much to the much more efficient tool for taxing interest Swiss economy, or enjoys a comparable interna- income than exchange of information.

3 Report of the Board

•To prevent this success from backfiring, regard to the Know Your Customer rules, Switzerland must firstly insist on implemen- numerous leading financial centres abroad tation and application of the guidelines in are still considerably behind best market prac- EU member states, their dependent and associ- tices, as revealed by a study on behalf of the ated territories, and in other European coun- foundation SFS Stiftung Finanzplatz Schweiz tries. Secondly, Switzerland must also take over (see box 2).The latest obligations will accen- all the exceptions and special cases pro- tuate these international differences. vided for in the guidelines. And thirdly, Switzerland must ensure that the international Switzerland must avoid further obligations regulations will also be rapidly integrated in for exchange of information in future. the national legislation of other countries and • Negotiations with the EU in this respect were applied in their financial markets. Otherwise extremely complex, but led in the end to a win- our financial centre will be affected by a specif- win situation for both sides. Due tribute is paid ic form of winner’s curse: global leadership here to the delegates for their negotiation skills can bring considerable business drawbacks (on and co-operative teamwork with our members. the cost side). • As a leader in private banking, Switzerland must take measures to prevent money launder- Integration ing. The Swiss Bankers’ Association’s revised Due Diligence Agreement and the Money Individuality is indispensable for upholding com- Laundering Ordinance issued by the Swiss petitive advantages, and integration is a necessary Federal Banking Commission strengthen these condition for exploiting those advantages. In a measures. The Foreign Banks have supported good many revision projects, the Foreign Banks the adaptation of surveillance law to interna- have therefore supported the respective adapta- tional codes such as the Financial Action Task tions to international regulations. Force (FATF) recommendations. These two • Revision of the provisions on administrative new surveillance law measures come into force and judicial co-operation was supported by the per 1 July 2003. Switzerland has already intro- Foreign Banks, because the previous regulations duced very extensive measures against money were increasingly leading to the international laundering. In this sector, particularly with isolation of Switzerland in this sector.Adminis- trative co-operation has been extended by this Box 1: Withholding tax regime on interest income of EU residents revision. The existing procedural protec- (paying agent tax) tion is upheld, but modalities have been With a view to unifying taxation on interest income, the EU countries want to established for accelerating litigation. This ensure through automatic information exchange between tax authorities that retains the important principle of Checks and interest income attained in any member state by EU residents is taxed in the Balances in order to prevent abuse of inter- country of domicile according to the applicable tax laws there. The respective national co-operation for bypassing data pro- definitions and technical details are to be established in a directive. tection. Not affected by this revision are the Switzerland already offered some time ago a withholding tax regime (paying private banking carve out regulations, agent tax) as equivalent measure. This offer is conditional upon the EU guide- which remain valid as before. lines also being implemented in all dependent or associated territories and • The Swiss investment fund law is being upon equivalent measures being adopted in other European countries. adapted to EU guidelines, and the Federal Currently the interest taxation directive and respective agreement with Council has ordered an expertise in this con- Switzerland are still pending. The paying agent tax scheme cannot enter into nection. Although investment funds based on force before 1 January 2005. Swiss law still do not have free access to the EU market, legal restrictions should not hinder

4 Report of the Board

access either to foreign funds in Switzerland or Box 2: Levelling the playing field to Swiss funds abroad. To improve product The foundation SFS Stiftung Finanzplatz Schweiz, initiated by the Foreign transparency and comparability on the Banks in Switzerland and now administered by the Swiss Bankers’ Associa- investment fund market, publication of the tion, asked Marc Pieth (Professor Basel Institute for Governance) to carry out Total Expense Ratio (TER) is to be declared a comparative study of anti-money laundering and due diligence law in mandatory.This complies with the correspond- Switzerland, the USA, the United Kingdom and Singapore. ing principles of the Fédération Européenne This study gives full marks to Switzerland compared with the other countries, des Fonds et Sociétés d’Investissement (FEFSI). particularly with regard to the implementation and application of these regula- • Accounting regulations have been adapted tions. The USA and the United Kingdom have made substantial progress in in various ways to the International Accounting formal compliance with international organization requirements since 11 Sep- Standards (IAS) now used in Europe.The Swiss tember 2001. Since the respective laws were passed only recently, not many Federal Banking Commission furthermore conclusions can yet be drawn as to their effectiveness. Furthermore, the United decreed that assets managed are now to be Kingdom and USA still show deficits both in the implementation of anti-money declared in annual accounts closing. In laundering measures and in compliance with due diligence obligations. Singa- connection with the SWX Swiss Exchange pore seems to have ongoing problems with implementation. Corporate Governance guidelines, the dis- The results of this study are to be published in summer 2003, and the foun- closure of board and executive management dation SFS Stiftung Finanzplatz Schweiz is also financing an abbreviated ver- remunerations, participations and loans was sion summarizing the main findings. proposed as a mandatory requirement for all banks. After considerable discussion, however, this proposal was rejected. •The Foreign Banks also opposed this regulation, Internal matters which would have led to a paradoxical situa- tion: only the Swiss subsidiaries of foreign Our membership figures rose last year despite banks would have been required to disclose the several mergers. Since the General Assembly remuneration of their organs, not the parent 2002, 18 institutions have joined the Associa- institute. tion of Foreign Banks in Switzerland. This • Voluntary compliance was also harmonized increase can be taken as a sign of the growing with the regulations and standards applying need for up-to-date information and for repre- outside Switzerland. Publication of the Swiss sentation of interests in various bodies.The inte- Bankers’ Association’s Directives on the Inde- gration of the Foreign Funds Association Switzer- pendence of Financial Research largely fol- land into the Association of Foreign Banks in lowed the regulations valid in the USA. The Switzerland in June 2002 also brought foreign revised Internal Control guidelines adopted the fund managers and agents as new members.This principles of the Framework for Internal was enabled by the revision of the Articles of Control Systems in Banking Organisations Association resolved at the General Assembly in published by the Basel Committee on Banking June 2002. Supervision. These guidelines come into force After reviewing our Annual Report and Corpo- at a time when Corporate Governance is rate Identity last year, the Association’s web- attracting a great deal of attention, also in site was also updated to the new Corporate public. Design and at the same time expanded Main events during the year under review are set (www.foreignbanks.ch). Our presence was not out in the annexed chronology “Banking Regula- only increased virtually, however, but also tion and Politics”. through personal contacts: the Association held various events last year in Geneva, Lugano and

5 Report of the Board

Zurich.A listing of the most important presenta- This also applies to our representatives in the tions and seminars is included with the annexed organs of friendly organizations, particularly the chronology under “Internal Events”. Further- Swiss Bankers’ Association. more, discussion groups were formed to support the implementation of legislative changes. The following new Board members were elected at the 2002 General Assembly: Peter Franz Braunwalder, HSBC Republic Bank (Suisse) SA, Hans Peter Brunner, Coutts Bank (Switzerland) Ltd., Christian A. Camenzind, Bank Sal. Oppen- heim jr. & Cie (Switzerland) Ltd., Bruno Meier, Deutsche Bank (Suisse) SA, and Maurice Mon- baron, Crédit Lyonnais (Suisse) SA. The follow- ing Board members were elected for a further term of office: Claude-Alain Burnand, BNP Paribas (Suisse) SA, Louk de Wilde, Banque MeesPierson BGL SA, Eduardo Leemann, AIG Private Bank Ltd., Brunello Perucchi, Banca Popolare di Sondrio (Suisse) SA, and Alfredo Gysi, BSI Ltd. During the current year Matthias Frisch, Goldman, Sachs & Co. Bank, and Louk de Wilde, Banque MeesPierson BGL SA, retired from the Board. We sincerely thank them for their valuable services and commitment to our Association. Peter Franz Braunwalder, HSBC Republic Bank (Suisse) SA, has been newly elected as Deputy Chairman of the Board. Vari- ous changes are also reported in associated insti- tutions and the Swiss Funds Association SFA. Adriano Zanoni, BNP Paribas Private Bank (Switzerland) SA, stepped down from the Board of Telekurs Financial Information Ltd. where the interests of the Foreign Banks are now represent- ed by Thomas F. Husemann, Rothschild Bank AG. Franz Anton Wild, BSI Ltd., has left the Board of SIS Swiss Group AG and Werner Vontobel, AIG Private Bank Ltd., suc- ceeds him as our representative.After hardly one year on the Board of the Swiss Funds Association SFA, Winfried Kilp, Robeco (Switzerland) Ltd., stepped down and was replaced by Stefan K. Kräuchi, AIG Fund Management (Switzerland) Ltd. On behalf of our member institutions, we sincerely thank all the aforementioned gentle- men for their valuable services and commitment.

6 Chronology 2002–2003

Banking Regulation and Politics

June • Integration of the Foreign Funds Association Switzerland into the Association of Foreign Banks in Switzerland • Entry into force of the revised Articles of Association of the Association of Foreign Banks in Switzerland

September • Publication of the circular Information given by banks to heirs of defunct clients by the Swiss Bankers’ Association

October • Entry into force of the Swiss Bankers’ Association’s Directives concerning the remote sale to consumers of financial services

November • Entry into force of the partial revision of the circular of the Swiss Federal Banking Commission: Outsourcing

December • Publication of the Money Laundering Ordinance by the Swiss Federal Banking Commission (entry into force: 1 July 2003) • Publication of the amended Guidance notes on Investment Funds by the Swiss Federal Banking Commission • Entry into force of the revised guidelines Banking Accounting of the Swiss Federal Banking Commission • Presentation to the Swiss Federal Department of Finance of the report Taxation of employee stock options by the working group in charge

January • Entry into force of the revised Consumer Credit Act and the corresponding ordinance • Entry into force of the Swiss Bankers’ Association’s Directives regarding internal control • Circular of the Swiss Bankers’ Association Obligation of document conservation according to art. 957 and 962 of the Swiss Code of Obligations • Publication of the reviewed Agreement of the Swiss banks’ code of conduct with regard to the exercise of due diligence (CDB 03) by the Swiss Bankers’ Association (entry into force: 1 July 2003) • Publication of the Directives on the Independence of Financial Research by the Swiss Bankers’ Association (entry into force: 1 July 2003) • Signature of administrative guidelines governing the handling of the Double Taxation Agreement between Switzerland and the USA • Presentation of the Report Towards a Level Playing Field in Cross Border Banking: Comparing Anti Money Laundering Rules (Singapore, Switzerland, UK, USA) published by the Basel Institute of Governance (study mandated by the SFS Stiftung Finanzplatz Schweiz)

February • Adoption of the second Decreto Tremonti (scudo fiscale) by the Italian Parliament • Adoption of a tax amnesty in Germany

March • Publication of the Report on Money Laundering by the Swiss Federal Banking Commission

7 Chronology 2002–2003

Internal Events June • On Course in Choppy Waters D. Zuberbühler, Federal Banking Commission 30th General Assembly T. Shepheard-Walwyn, London M. Saunders, Citigroup, London N.Walter, Deutsche Bank, Frankfurt/M

July • New Ways in Fund Distribution F. Methlow, Financial Services

August • Wandel in der Kontinuität – Rechtsfragen Ch.Winzeler, Swiss Bankers’ Association des Bankkundengeheimnisses, Seminar • Richtlinien der EBK zu den H. Gareus, Bank Hapoalim (Switzerland) Ltd. Rechnungslegungsvorschriften • Dispositions régissant l’établissement C. Suchet, Swiss Federal Banking Commission des comptes

September • La formation – la base d’une M.Wirth, Swiss Bankers’ Association, relation de travail à long terme A. Ferraiuolo, BSI Ltd.

October • Crisis Communication: S. Korfmann-Bodenmann, Korfmann Expect the Unexpected Corporate Communications Consulting

November • Aussprache zu den Richtlinien für den M. Baumann, Swiss Funds Association SFA, Fondsvertrieb Th. Huber, PricewaterhouseCoopers • Implémentation de l’Ordonnance D. de Montmollin, sur le blanchiment d’argent Secretan Troyanov Avocats • Que nous réserve l’année 2003? D. Nilles, Institut Créa, University • Umsetzung der Geldwäschereiverordnung M. Genoni, Bank Sal. Oppenheim jr. & Cie (Switzerland) Ltd. • Previsioni economiche 2003 A.Tuor, M.Tettamanti, Corriere del Ticino

December • Konsumkreditgesetz – ready for take off! M. Schönenberger, Dexia Private Bank (Switzerland)

January • Directives dans la distribution des fonds M. Baumann, Swiss Funds Association, A. Bizzozero, PricewaterhouseCoopers

February • Convention de diligence 2003 A. Hubschmid, Swiss Bankers’ Association

March • Umsetzung der VSB 03 M. Genoni, Bank Sal. Oppenheim jr. & Cie (Switzerland) Ltd.

April • Strafverfolgung und Rechtshilfe Th.Wyser, B. Holtkamp, S. Mastroianni, Investigation pénale et entraide juridique Office of the Prosecutor general of the Investigazioni penali e assistenza giuridica Swiss Confederation

May • Bilateral Negotiations II,Taxation of J. Russotto, Savings, Switzerland and the EU Oppenheimer,Wolff & Donnelly LLP

8 Foreign Banks: A Comparison

Number of Employees (Domestic) and of Banks 1993–2002

Banking groups and total (end of year)

1120,00020 000 600

1100,00000 000 500

880,0000 000 400

660,0000 000 300

440,0000 000 200

220,0000 000 100

00 93 94 95 96 97 98 99 2000 01 02

Ⅵ Foreign Banks Ⅵ Big Banks Ⅵ Brokerage and Merchant Banks Ⅵ Cantonal Banks Ⅵ Regional, Raiffeisen and Other Banks Ⅵ Private Bankers Number of Foreign Banks Number of Banks (Total)

The number of foreign-controlled banks ous domestic bank mergers and acquisi- (including Swiss branches of foreign banks) in tions, which also resulted in personnel Switzerland hardly changed during the nineties, reductions. A short growth of personnel fig- since reductions due to the numerous bank ures since 1998 is followed by a steady decline mergers were compensated by a good many new which started in 2000 and affected the whole openings. This reflects the great attractive- banking sector. ness of Switzerland as a financial centre. The number of foreign banks’ employees rose steadily until 2001, but declined in 2002 above all due to the difficult economic conditions affecting asset management institutes and drastic restructuring among various banks. In con- trast to the foreign banks, the overall number of banks in Switzerland declined steeply from 1990 to 1998.The steady decline during Sources: 1993–2001: Swiss National Bank; a large part of the nineties was due to the numer- 2002: Own Estimates

9 Foreign Banks: A Comparison

Return on Equity 1993–2002

Earnings in % of equity (end of year)

70%

60%

50%

40%

30%

20%

10%

0%

–10% 93 94 95 96 97 98 99 2000 01 02

Foreign Banks Big Banks Brokerage and Merchant Banks Cantonal Banks Regional, Raiffeisen and Other Banks Private Bankers

Among the institutes specializing in asset In 2002 return on equity of the foreign banks management (the foreign banks, private declined again. Estimated at hardly 7%, it is bankers, brokerage and merchant banks), average now significantly lower than it used to be during return on equity rose continuously in the second the second half of the nineties. half of the nineties.The low return on equity of the foreign banks by comparison with other groups is mainly attributable to their tradition- ally high capital coverage. Capital resources of the foreign banks as a whole have consistently amounted to at least twice the legal minimum in recent years. Notable among the other banking groups is the improving return on equity of the big Swiss banks since 1996, and the consistent profitability of the regional banks, Raiffeisen banks and cantonal banks. Sources: 1993–2001: Swiss National Bank; 2002: Own Estimates

10 Foreign Banks: A Comparison

Cost-Income Ratio 1993–2002

Administrative expenses in % of net income revenues

70%

65%

60%

55%

50%

45%

40%

93 94 95 96 97 98 99 2000 01 02

Foreign Banks Big Banks Brokerage and Merchant Banks Cantonal Banks Regional, Raiffeisen and Other Banks Private Bankers

The cost-income ratio of institutes specializ- banks again rose, but less steeply than in 2001. ing in asset management has been greatly This rather weaker increase is attributable to a reduced during the second half of the further decline of net income, in particular com- nineties. This significant improvement is mission earnings, while at the same time admin- evident above all among the foreign banks and istrative expenses rose less sharply than in prior private bankers. Decisive factors for this devel- year. opment are the higher net income from banking activities in these years together with greater return on investment in human resources and tangible assets. The big Swiss banks and the cantonal banks also recorded an improved ratio, albeit to a lesser extent. In general, there has been a convergence of expenses and income in recent years, with rather less differ- ence between individual banking groups. In Sources: 1993–2001: Swiss National Bank; 2002 the cost-income ratio for the foreign 2002: Own Estimates

11 Foreign Banks: An Overview

Cost-Income Ratio 2002

Number of foreign banks grouped according to their administrative expenses in % of their net income

2 Banks <35% 3 Banks 35–40% 3 Banks 40–45%

6 Banks 45–50%

8 Banks 50–55% 48 Banks >70%

11 Banks 55–60%

14 Banks 60–65% 13 Banks 65–70%

The cost-income ratio differs considerably against 7 foreign banks in 2001 with a ratio of between individual foreign banks. Shown here 40% or less, this applied to only four of them in are the numbers of foreign banks in each class. 2002. In 2000 as many as 23 institutes had such a Two foreign banks spent only 35% (or less) favourable ratio. In the year under review 98 of their net income on administrative outlay, banks spent more than 60% of their income on while 48 foreign banks spent more than business outlay, compared with 82 institutes in 70%. The ratio for a typical foreign bank the previous year and 50 in 2000. (median value) is about 71% as opposed to 65% in 2001. Not considered in the diagram are 24 institutes with values above 100% and one institute with a negative quote. Compared with the previous years, in 2002 the cost-income ratios of the foreign banks in general were higher. Fewer banks had an extremely favourable, i.e. low cost-income Source: Own Survey ratio, but more institutes a high one. As (2002: 133, 2001: 135, 2000: 131 institutes)

12 Foreign Banks: An Overview

Earnings per Employee 2002

Number of foreign banks grouped according to their earnings per employee (in CHF 1000; end of year)

40

35

30

25

20 38

15 27 24 24 10

5 7 5 3 1 3 0 < 0 0–50 100–150 200–300 300–400 400–500 >500 50–100 150–200

The difficult economic situation is reflected in the further decline of annual earnings per employee compared with previous years. The typical foreign bank (median value) attained earnings per employee of CHF 59,000 in 2002, compared to CHF 75,000 in the previous year and CHF 128,000 in 2000. In 2002, only 14 institutes attained earnings per employee exceeding CHF 200,000, compared to 19 institutes in the previous year and 34 banks in 2000. 62 banks closed the year at less than CHF 50,000 (2001: 47, 2000: 17 institutes). As in 2001 the majority of foreign banks (52; 2001: 63) attained earnings per employee between CHF 50,000 and 150,000. Source: Own Survey (2002: 132, 2001: 134, 2000: 131 institutes)

13 Foreign Banks: An Overview

Gross Profit and Earnings 2002

Totals of gross profit and earnings (in CHF million) and number of foreign banks grouped according to their respective gross profit

25 75 19 10 2 0 0 1 1 800

600

400

200

0

< 0 0–25 25–50 50–100 100–150 150–200 200–250 250–300 300–350 –200 Ⅵ BGrossrutto gPerofitwinn Ⅵ NetRein Incomegewinn

In the year under review 94 institutes closed recorded positive gross earnings below CHF with positive gross earnings below CHF 50 25 million.Their share of the total amounted to million. As a whole, this group attained gross 18%.The number of institutes with a gross loss earnings of CHF 1.2 billion and earnings of CHF has also risen (25 compared with 15 in prior 714 million. The 12 banks with gross earnings year). between CHF 50 and 150 million attained a total of CHF 1.0 billion and earnings of CHF 646 million. Two institutes attained gross earnings exceeding CHF 150 million each, or CHF 619 million in total.The earnings of these two banks amounted to CHF 281 million.This corresponds to 22% and 17% respectively of the gross earn- ings and earnings of the foreign banks as a whole. In the previous year the ten institutes with the highest gross earnings totalled close to 50% Source: Own Survey of the group’s gross profit and earnings. 75 banks (2002: 133, 2001: 134, 2000: 131 institutes)

14 Foreign Banks: An Overview

Value-Added distributed to Main Stakeholder Groups 2002

Total of distributed value-added (personnel expenses, taxes, earnings, in CHF million) and number of foreign banks grouped according to their individual value-added

9 92 16 7 2 1 0 2 1600

1400

1200

1000

800

600

400

200

0

–200 < 0 0–60 60–120 120–180 180–240 240–300 300–360 >360

Ⅵ Personnelersonala uExpensesfwand Ⅵ STaxesteuern Ⅵ EarningsReingewinn

Banking value-added primarily benefits three The structure of distributed value-added stakeholder groups: the employees, the changed only slightly despite deterioration of the state and the shareholders. The sum of per- economy.About 8% of income was distributed to sonnel expenses, taxes and earnings can thus be the state, 63% to the employees and 28% to the regarded as an approximate indicator of banking investors. The respective values in prior year value-added. were 10%, 60% and 28%. In the year under review the value-added dis- tributed to the three stakeholder groups amount- ed to CHF 5.6 billion (2001: 6.4 billion). 117 banks distributed up to CHF 120 million each among these three groups, paying out a total of CHF 3.9 billion.This corresponds to 70% of the total for the foreign banks as a whole.The three banks with a distributed value-added of more than CHF 240 million paid out CHF 1.3 billion Source: Own Survey or 23% in total. (2002: 129, 2001: 134, 2000: 131 institutes)

15 Foreign Banks: An Overview

Importance of the Results from Commission Activities 2002

Number of banks grouped according to their results from commission activities in % of net income

5 Banks >90% 16 Banks <40% 13 Banks 80–90%

14 Banks 40–50%

36 Banks 70–80% 17 Banks 50–60%

30 Banks 60–70%

The importance of commission activities By comparison: per year-end 2001, results from for each individual institute can be derived from commission activities accounted for 77% of the the net income structure. In 54 institutes, private bankers’ net income. Somewhat lower compared with 38 institutes in the previous year, were the shares of the brokerage and merchant results from commission activities accounted for banks (65% and 49% respectively) and the big over 70% of net income, reflecting the strong banks (37%). The commission activities con- focus of these banks on private banking tributed 22% and 16% to the net income of the activities.The results from commission activities cantonal and regional banks, respectively, or only of 16 institutes accounted for less than 40% 8% for the Raiffeisen banks. of their net income.These banks focus mainly on interest activities or trading operations. Among the other banks (61) commission activ- ities accounted for 40 to 70% of net income. For these banks, interest and trading operations con- tributed an important share to the overall net Source: Own Survey income, besides the commission activities. (2002: 131, 2001: 134 institutes)

16 Foreign Banks: An Overview

Structure of Net Income 1993–2003

Components of net income

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0% 93 94 95 96 97 98 99 2000 01 02 Ⅵ REresultsfolg Z ifromnsge sInterestchäft Activities Ⅵ REresultsfolg K ofrommm iCommissionssionsgeschä Activitiesft Ⅵ REresultsfolg H fromande lTsradinggeschä Operationsft Ⅵ ÜOtherbrige Ordinarr ordentyl icRhesultser Erfolg

This diagram clearly shows the great impor- tance for the foreign banks of commission activities, which contributed 60% of net income for 2002 and thus remained stable compared with previous years. The importance of the other two net income components – interest and trading results – have diverged over the years. While net interest income lost importance during the second half of the nineties, trading gained significance to some extent. In 2001 and 2002 net interest income rose again slightly (from 23% in 2000 to 26% in 2002), while net trading income declined from 12% (2000) to 11% (2002). Sources: 1993–2001: Swiss National Bank; 2002: Own Estimates

17 Foreign Banks: An Overview

Origin of Foreign Banks 2002

Number of banks and share of earnings (end of year) according to geographical region

Near and Middle East (except Israel) Japan 5 Banks 4 Banks Others 1.9% 0.3% 9 Banks 2.2% Germany USA / Canada 18 Banks 21 Banks 13.6% 13.6% Other Europ. Countries and Israel Benelux 11 Banks 19 Banks 4.3% 9.9% Others EU / EEA 6 Banks 0.7%

Italy Austria / Liechtenstein 19 Banks 7 Banks Spain / 9.7% –0.1% Portugal 5 Banks 3.4% France United Kingdom 13 Banks 10 Banks 14.2% 26.3%

The majority of foreign banks (97 institutes or earnings of 78%. As second most important 66%) comprises subsidiaries or branches of an group, the North American banks contribute EU or EEA bank, whereby 10 banks or more 14% to the banking group’s earnings. each from Germany, the Benelux countries, France, and the United Kingdom are pres- ent in Switzerland. 11 banks or branches in Switzerland are from other European coun- tries (in particular Russia and Turkey) and Israel. This means that 74% of the foreign banks in Switzerland have a majority shareholder in Europe. 21 (14%) of the foreign banks in Switzerland are from the USA and Canada. The significance of the EU is reflected not only in the respective number of banks, but also in their contribution to the banking group’s Source: Own Estimates

18 Foreign Banks at a Glance

Key Figures of the Foreign Banks 1998–2002

1998 1999 2000 2001 2002 Key figures: Institutional Number of Banks and Subsidiaries 149 144 150 150 147 Number of Branches 339 322 349 349 340 Employment (domestic) 16,124 15,841 16,987 16,857 16,000 Employment (abroad) 1385 1352 1539 1660 1600

Key figures: Financial Return on Equity 14.1% 13.7% 15.9% 10.0% 7.0% Earnings for the Year per Employee (in CHF 1000) 125 127 150 99 81 Gross Earnings per Employee (in CHF 1000) 212 211 258 183 154 Personnel Expenses per Employee (in CHF 1000) 157 171 183 190 144 Administrative Expenses per Employee (in CHF 1000) 241 265 285 301 336 Cost-Income Ratio 53.2% 55.7% 52.5% 62.2% 66.5% Taxes in % of Earnings for the Year (before taxes) 18.8% 21.0% 22.9% 23.2% 23.7% Distr.Value-Added per Employee (in CHF 1000)* 311 331 378 319 265 Distr.Value-Added in % of Net Income from Banking Operations 68.8% 69.7% 69.6% 65.8% 57.1%

* = Personnel Expenses + Earnings for the Year + Taxes

Sources: 1998–2001: Swiss National Bank; 2002: Own Estimates

19 Löwenstrasse 51 . Postfach 6229 . CH-8023 Zürich T +41 (0)1 224 40 70 . F +41 (0)1 221 00 29 www.foreignbanks.ch . [email protected] Association of Foreign Banks in Switzerland Verband der Auslandsbanken in der Schweiz Association des banques étrangères en Suisse Associazione delle banche estere in Svizzera

Löwenstrasse 51 . Postfach 6229 . CH-8023 Zürich T +41 (0)1 224 40 70 . F +41 (0)1 221 00 29 www.foreignbanks.ch . [email protected]