Annual Report

Association of Foreign Banks in 2001–2002 Organization

Board

Chairman Dr. Alfredo Gysi Chief Executive Officer, BSI Ltd., Deputy Chairman René G. Keller Senior Adviser, Lloyds TSB Bank plc, Geneva Deputy Chairman Reto A. Cavelti Managing Director and Senior Executive Officer for Switzerland, Schroder Salomon Smith Barney, Treasurer Paul Maibach Chief Executive Officer, Bank CIAL (Switzerland), Basel Rainer Erdmann Executive Vice President, CEO, LB(Swiss) Ltd., Zurich Joseph Assaraf General Manager and President of the Committee of General Management, Discount Bank and Trust Company, Geneva Claude-Alain Burnand Secretary General, BNP Paribas (Suisse) SA, Geneva Louk de Wilde General Manager, Banque MeesPierson BGL SA, Geneva Eduardo Leemann Chief Executive Officer, AIG Private Bank Ltd., Zurich Brunello Perucchi Chief Executive Officer, Banca Popolare di Sondrio (Suisse) SA, Lugano Matthias Frisch General Manager and Member of the Management Committee, Goldman, Sachs & Co. Bank, Zurich Gabriel Perahia Member of the Executive Committee, HSBC Republic Bank (Suisse) SA, Geneva Herbert J. Scheidt Managing Director, Deutsche Bank (Suisse) SA, Geneva

Auditors

Matthias Deplazes Senior Vice President and Member of the Management Committee, Finter Bank Zürich, Zurich Heinrich Speich Chief Executive Officer and Chairman of the Board of Management, Bank von Ernst & Cie AG, Zurich 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 31 March 2002

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 The interests of the foreign banks are upheld by Swiss law and subject to Swiss bank supervi- the Association of Foreign Banks in Switzerland, sion, with a majority shareholder domiciled founded on 5 July 1972 with registered offices in abroad or controlled by a foreign shareholder. Zurich. They may be subsidiaries of foreign banks, belong to foreign non-banking institutions or to Number of member institutions private persons. • Legally independent branches of foreign bank- 99 foreign-controlled banks ing institutions, likewise subject to Swiss bank 11 foreign banks’ branches supervision but with additional requirements. 7 other financial service providers (securities dealers, representative offices, etc.) with foreign majority shareholder Foreign banks in Switzerland by legal structure as of 31 March 2002 106 subsidiaries of foreign banks 21 subsidiaries of foreign non-banking insti- Apart from representing members’ interests tutions and banks with private majority toward the Swiss Federal Banking Commission, shareholder domiciled abroad the and other state organs, 23 branches of foreign banking institutions the Association of Foreign Banks in Switzerland as of 31 December 2001 participates in commissions and working groups of the Swiss Bankers’ Association and other The number of foreign banks in Switzerland bodies. The Association of Foreign Banks in amounted to 150 as of 31 December 2001, so Switzerland is competently supported in this that out of all the banks in Switzerland about work by numerous representatives of its member 40% are foreign-controlled. Most of the foreign institutes. banks in Switzerland are headquartered either in Zurich (69) or Geneva (51). Only Lugano is Further information on the Association, its activ- otherwise significant in this respect (11), mainly ities and the role of the foreign banks in because most of the foreign banks in Switzerland Switzerland is available at www.foreignbanks.ch. have a branch in the .

Most of the foreign banks focus on asset manage- ment for private clients (), as well as investment fund business. However, vari- ous foreign banks offer additional products and are also active in other market segments, in parti- cular commercial credit and trading, as well as corporate finance and mortgage business.

2 Report of the Board

2001 – a Difficult Year discussion. Four of these are of crucial impor- tance for Swiss and foreign banks alike, since they The year under review was not a favourable one. affect the protection of privacy and in particular The US and European economies almost plunged bank customer confidentiality (see box 2). into recession, and Japan recorded negative growth rates. Emerging Markets also either wit- All banks in Switzerland have obligations toward nessed slow rates of growth or indeed had to their clients, many of whom are long-standing, to accept a reduction in gross domestic product. In uphold bank customer confidentiality. Argentina, the currency and financial crisis Relinquishing bank customer confidentiality assumed such dramatic proportions that there is would seriously undermine confidence in little hope of a rapid return to high growth Switzerland and Swiss banking. However, the rates in the foreseeable future. Association of Foreign Banks in Switzerland sup- ports the Federal Council in its efforts to find Developments on stock markets were even solutions that also accommodate the legiti- gloomier than those in the economy. Share prices mate interests of the EU. averaged up to 25% below the previous year’s level, and losses of 80% on New Economy stocks The foreign banks therefore support flexible were no exception. Hopes of an upswing follow- solutions in this connection, in particular the ing interest rate reductions were dashed by the Swiss proposal of a paying agent’s tax. Such terrorist attacks of 11 September 2001. Not until solutions would not only take full account of the beginning of the current year was there any the EU’s fiscal interests, but would also justification for cautious optimism, based uphold for Switzerland the bank customer con- mainly on expectations of an upswing in the fidentiality and the principles of speciality and second half of 2002. double incrimination. These are of decisive importance for privacy protection since they In Switzerland, the gloomy mood was amplified apply to international administrative assistance by the Swissair grounding and the controversial and international assistance in criminal matters. launch of the new SWISS airline (see box 1). These economic problems were exacerbated by Box 1: Swissair - Crossair - SWISS a number of tragic events in Switzerland and On 1 October 2001 the SAirGroup had to declare insolvency because lack of abroad. financial resources precluded further operations. One day later per 2 October 2001 all Swissair flights were cancelled for two days. A project launched by the big Swiss banks to continue Crossair operations separately from the Negotiations between Switzerland SAirGroup proved impracticable in the original form. On 22 October 2001 and the EU Swiss industries as a whole were invited by the Federal Council to participate in the recapitalization of Crossair, and the Swiss Bankers’ Association also The interest of our Association in relations invited the foreign banks to participate in this capital increase. between Switzerland and the EU, and particularly Various foreign banks accepted this invitation. Others preferred not to, how- in the bilateral negotiations, was reflected by ever, due to reservations against the project and the procedure adopted for inviting Ambassador Dante Martinelli (Swiss rescuing a national company. A good many banks pointed to the substantial Mission to the European Communities) as guest losses they had incurred in connection with credits granted to Swissair. th speaker to the 29 General Assembly. Ambassador On 9 January 2002 the administrator called upon SAirGroup bondholders to Martinelli gave an overview of negotiations deposit their securities. between Switzerland and the EU, and explained On 1 April 2002 the newly founded SWISS airline started its operations. the Swiss standpoint on the issues currently under

3 Report of the Board

It is also upon these two principles – recogni- The Association’s point of view was explained tion of the EU’s legitimate interests and the at the CEO lunches held in Zurich, Geneva maintenance of credibility vis-à-vis Swiss private and Lugano. The issues of privacy protection banking customers – that the standpoint of the and bank customer confidentiality were also foreign banks with regard to market opening taken up at information events with Messrs. plans is based. In the opinion of the foreign Viktor Füglister and Claude-Alain Margelisch banks, the interests of both parties are best (Swiss Bankers’ Association) and with Jean upheld if agreement between the EU and Russotto (Oppenheimer Wolff & Donnelly Switzerland is based on the principle of mutual LLP). Our Association will continue to give recognition. Such an agreement must be valid priority to these issues during the current on a long-term basis if it is to be legally business year. upheld.The alternative would be to take over and further develop the existing Acquis communautaire and with it any future development implemented Protection of Privacy Rights unilaterally by the EU. It would not be accept- able, however, to conclude an agreement Privacy protection is likewise under debate in which would leave Switzerland unable to connection with other national and international influence future changes. initiatives. With increasingly globalized regula- tions and the practice of the US to seek imple- Box 2: Principal negotiations between Switzerland and the EU mentation of its legislation extraterritorially, Among the ongoing negotiations between Switzerland and the EU, four princi- Switzerland is currently under pressure from pal themes are important with regard to the Swiss financial centre and bank various sides to partly or even completely abolish customer confidentiality: the protection of privacy (see box 3). • Customs fraud The EU aims to include tax evasion under fraud, and is asking Switzerland These international discussions are also giving to comply with the judicial assistance in criminal matters and administrative rise to proposals for revising Swiss legisla- assistance clauses of the existing Acquis communautaire. Switzerland sug- tion: gests drawing up a comprehensive list of fraud cases instead of a general • fraud clause. Revisions are currently being prepared to the • Taxation of interest income Swiss Bankers’ Association’s Agreement on the The EU plans to publish a directive on the introduction of automatic informa- Swiss Banks’ Code of Conduct with Regard to the tion exchange. Non-member countries such as Switzerland and the USA (but Exercise of Due Diligence (CDB 98) and the Swiss not Singapore, for example) would be included in the system by means of trea- Federal Banking Commission’s Circulars on ties. Switzerland has clearly rejected such exchange of information, but would Money Laundering. The banks will be required be ready, under certain conditions, to introduce a paying agent tax scheme. thereby to take precautionary measures against • Judicial and interior cooperation the financing of terrorism, to identify The Schengen treaty and the Dublin agreement, in which Switzerland has suspicious transactions and to continuously indicated an interest in participating, are very important for the banking monitor customer relations even after sector with regard to international judicial assistance in criminal matters. It account opening. must be ensured that the principles of international judicial assistance – in • The revision to the Swiss Federal Banking particular double incrimination, speciality and legal recourse – are upheld. Commission’s Circular on Outsourcing • Services liberalization establishes that customers must be in- Switzerland upholds the liberalization of services based on a treaty with a formed regarding data transmission abroad third country, and rejects integration in EU law. in connection with outsourcing agreements. This obligation does not apply if the data trans-

4 Report of the Board

ferred is made anonymous so that the identity Box 3: Information exchange – Recommendations by international bodies of the customer cannot be determined. and foreign law • The Swiss Federal Banking Commission will be • In its Customer Due Diligence for Banks paper published in October 2001, making the Swiss Federal Department of the Basel Committee on Banking Supervision requires access by local super- Finance a proposal for legislative regulation vision authorities to the customer data of banks with foreign ownership. of administrative assistance in stock law • The Patriot Act decreed by US President Bush includes requirements for the matters. Following various Federal Supreme extraterritorial applicability of some regulations concerning the obligation to Court decisions, the Swiss Federal Banking provide information. Commission has concluded that under current • After 11 September 2001 the EU ordered various measures for combating conditions, administrative assistance, particu- the financing of terrorism. These include the freezing of assets, revision of larly with the USA, is not possible. The banks the money laundering guidelines and the speeding up of information expect such legislation to be based on the exchange. principles of speciality, dual incrimination • The OECD has started to link the combating of terrorism with the issue of and legal redress availability to the person con- harmful tax competition. The Financial Action Task Force (FATF) has taken cerned.These principles also apply to interna- up the matter of financing terrorism in its work on the money laundering tional judicial assistance in criminal problem. The FATF has issued a list of recommendations, among others on matters. the confiscation of assets and the obligation to provide information with regard to payment transactions and stock law, in order to combat the finan- Privacy protection is also affected by the revised cing of terrorist organizations. Convention on Double Taxation with Germany, which establishes clear conditions for administrative assistance in tax matters. The main events of the year with regard to bank- Furthermore, it significantly reduces taxation on ing policy and regulatory issues are listed on participation dividends.The banks have welcomed page 7. this agreement, which will be significant in the context of further negotiations with other EU countries.

With fiscal measures announced in September 2001, the Italian Government has taken spe- cial action to enable the repatriation of lost tax income without infringing banking secrecy. Italian citizens could appoint a bank in to act as point of payment while upholding banking secrecy on their behalf.The measures were pub- lished in September 2001 and lasted until the end of May 2002. Notable in this connection is that the government of an EU country has adopted the fiscal agent concept, which corresponds to the Swiss proposal of a paying agent’s tax scheme as an alternative to the EU’s planned information exchange.

5 Report of the Board

Internal Matters

During the thirtieth year since the founding of the Association of Foreign Banks in Switzerland we have modernized its structure. In this con- nection, our Annual Report is now presented in a new form, and our corporate image has been completely revised.The flow of informa- tion to our member institutions has been improved with various internal publications. Communication between the Board, Secretariat and Commission representatives in the Swiss Bankers’Association and member institutions has likewise been reorganized. Through various information events on themes of interest to our member institutions (see the chronology in the Annual Report), we have provided opportu- nity for more frequent discussions and contacts. We extend our sincere thanks to all those who have served our Association in one way or another for their valuable support and coopera- tion.

Per end of this business year our long-standing Board member and Deputy Chairman René G. Keller, Lloyds TSB Bank plc, will be retiring from the Board. We sincerely thank him for his out- standing services to our Association, and in par- ticular for standing for a third term of office. After six years, Rainer Erdmann, LB(Swiss) Private Bank Ltd., will also be retiring from the Board, and our thanks go to him as well. A pre- mature retirement from the Board has been announced by Herbert J. Scheidt, Deutsche Bank (Suisse) SA, who was only able to remain for a brief term of office. He will leave Deutsche Bank (Suisse) SA end of June.We thank Mr. Scheidt for his services to our Association.

6 Chronology 2001–2002

Banking Regulation and Politics

June • Publication of the Expert Report Banking Supervision by Prof. Dr. P. Nobel • Publication of the Guidelines on the calculation of net asset values and the handling of valuation errors in the case of securities funds by the Swiss Funds Association • Trading of SMI titles transferred from SWX Swiss Exchange to virt-x July • The Swiss Bankers’ Association’s Convention XIX on Notes for Foreign Debtors transformed into a Guideline August • Abolition of the Swiss Bankers’ Association’s Guideline Concept and Organization of Internal Audit in Banks, issued in 1977 September • Abolition of the Swiss Bankers’ Association’s Convention V on the Passing on of the Stamp Duty Tax October • Measures of the Federal Council against the Taliban • Legal measures to fight money-laundering (financing of terrorism) in the USA • Publication of the text Customer Due Diligence for Banks by the Basel Committee on Banking Supervision • Publication of a Sample Distribution Agreement and Guidelines on fund distribution by the Swiss Funds Association • Participation of several Swiss and foreign banks in the increase of capital of the new Crossair • Withdrawal of the Postfinance project by the Federal Council November • Financial Sector Assessment Program of the International Monetary Fund in Switzerland • Adoption of the Decreto Tremonti (scudo fiscale) by the Italian Parliament December • Constitution of an Expert Group under the chair of Prof. Dr. U. Zimmerli with the mandate to implement the recommendations of the expert report Reglementation and Supervision of the Financial Markets in Switzerland (Zufferey) • Rejection of the initiative on a Capital Gains Tax by majority vote of people and cantons January • Entry into force of the new Convention on Double Taxation between Switzerland and Germany • Entry into force of the new Value Added Tax • Entry into force of Measures Increasing the Efficiency of the Swiss Criminal Procedure • Introduction of EURO cash in the 12 countries of the European Monetary Union March • Expert Group report on Swiss Code of Best Practice on Corporate Governance issued by economiesuisse April • Corporate Governance Directive of SWX Swiss Exchange adopted • Popular initiative to include the Banking Secrecy in the Federal Constitution launched by the Swiss People’s Party (SVP/UDC)

7 Chronology 2001–2002

Internal Events

June La place financière suisse et Ambassador D. Martinelli l’intégration européenne – Swiss Mission to the speech on the occasion of the European Communities 29th General Assembly

September / October CEO lunches President and Board Members

October / November Systematisches Pricing im J. Giller, ICME International AG Vermögensverwaltungsgeschäft / Pricing in Asset Management

November / January What’s up in Regulation? V. Füglister / C.-A. Margelisch, Swiss Bankers’ Association

December / March KYC – identification de la clientèle Workshops

February Steuerliche Behandlung von H.-J. Jäger, Mitarbeiteroptionen / Julius Bär Family Office AG Option Plans for Staff Members

March / April Trusts in Switzerland N. Dale, HSBC Guyerzeller Bank Ltd.

March La place financière suisse et les J. Russotto, nouvelles négociations bilaterales Oppenheimer Wolff & Donnelly LLP avec l’Union Européenne / Where will the new bilateral negotiations between Switzerland and the EU lead to?

March / April Compliance Management – M. Roth, Lawyer, Séminaire and guest speakers

May I negoziati tra Svizzera e B. Perucchi, Unione Europea; La revisione Banca Popolare di Sondrio, delle procedure di diligenza – Board Member Séminaire with the C.-A. Margelisch, Centro di Studi Bancari Swiss Bankers’ Association M.A.M. Genoni, Bank Sal. Oppenheim jr. & Cie (Switzerland) Ltd.

8 Foreign Banks: A Comparison

Number of Employees (Domestic) and of Banks 1992–2001

Banking groups and total (end of year)

120,000120 000 600

100,000100 000 500

80,00080 000 400

60,00060 000 300

40,00040 000 200

20,00020 000 100

0 92 93 94 95 96 97 98 99 2000 01

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 acquisitions, which also resulted in person- (including Swiss branches of foreign banks) in nel reductions. Only since 1998 have person- Switzerland hardly changed during the nineties, nel figures risen again. This development is since reductions due to the numerous bank largely attributable to greater investments in mergers were compensated by a good many new information technology and process automation, openings.This reflects the great attractiveness and to the outsourcing of many activities. of Switzerland as a financial centre. Foreign bank personnel figures have continuously risen in recent years. In 2001 this trend continued despite the difficult conditions faced above all by asset management institutes. In contrast to the foreign banks, the overall number of banks in Switzerland declined steeply from 1990 to 1998.The steady decline during a large part of the nineties was due to the Sources: 1992–2000 Swiss National Bank; numerous domestic bank mergers and 2001: Own Estimates

9 Foreign Banks: A Comparison

Return on Equity 1992–2001

Earnings in % of equity (end of year)

70%

60%

50%

40%

30%

20%

10%

0%

–10% 92 93 94 95 96 97 98 99 2000 01

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

Among the institutes specializing in asset man- In 2001 return on equity of the foreign banks agement (the foreign banks, private bankers, was below the level of previous years.The brokerage and merchant banks), average return financial market situation has led to a steep on equity rose continuously in the second half of decline in earnings, although a return on equity the nineties.The low return on equity of the close to 10% is still above the level of the early foreign banks by comparison with other nineties. groups is mainly attributable to their tradi- tionally 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: 1992–2000 Swiss National Bank; 2001: Own Estimates

10 Foreign Banks: A Comparison

Cost-Income Ratio 1992–2001

Administrative expenses in % of net income revenues

70%

65%

60%

55%

50%

45%

40%

92 93 94 95 96 97 98 99 2000 01

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

The cost-income ratio of institutes specializing in In 2001 the cost-income ratio for the foreign asset management has been greatly reduced banks rose due on the one hand to a decline in during the second half of the nineties. This sig- net income, in particular commission income, nificant improvement is evident above all and on the other hand to steadily increasing among the foreign banks and private bankers. administrative expenses. Decisive factors for this development are the higher net income from banking activities in these years together with greater return on investment in human resources and tangi- ble assets.The big Swiss banks and the can- tonal 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 difference between individual banking groups. Sources: 1992–2000 Swiss National Bank; 2001: Own Estimates

11 Foreign Banks: An Overview

Cost-Income Ratio 2001

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

6 Banks <35% 1 Bank 35–40% 8 Banks 40–45%

12 Banks 45–50% 48 Banks >70%

15 Banks 50–55%

11 Banks 55–60%

18 Banks 60–65% 16 Banks 65–70%

The cost-income ratio differs considerably 82 foreign banks had to spend more than 60% of between individual foreign banks. Shown here their net income on administrative outlay, com- are the numbers of foreign banks in each class. pared with 50 banks in 2000. Six foreign banks spent only 35% (or less) of their net income on administrative outlay, while 48 foreign banks – including however several new ones – spent more than 70%.The ratio for a typical foreign bank (median value) is about 65% as opposed to 56% in 2000. Compared with the previous year, in 2001 the cost-income ratios of the foreign banks in general were higher. Fewer banks had an extremely favourable, i.e. low cost-income ratio, but more institutes a high one. As against 23 foreign banks in 2000 with a ratio of 40% or less, this Source: Own Survey applied to only seven of them in 2001. Last year (2001: 135 institutes; 2000: 131 institutes)

12 Foreign Banks: An Overview

Earnings per Employee 2001

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

40

35

30

25

20 36 15 29

10 18 16 16 5 10 4 1 4 0 < 0 0–50 100–150 200–300 300–400 400–500 >500 50–100 150–200

In 2001, earnings per employee declined substantially compared with the previous year. The typical foreign bank (median value) attained earnings per employee of CHF 75,000 in 2001, compared to CHF 128,000 in 2000. In 2001, 19 institutes attained earnings per employee exceeding CHF 200,000, compared to 34 institutes in the previous year. Seven banks closed the year at less than CHF 50,000 (2000: 17 institutes).The majority of foreign banks (52; 2000: 63) attained earnings per employee between CHF 50,000 and 150,000.

Source: Own Survey (2001: 134 institutes; 2000: 131 institutes)

13 Foreign Banks: An Overview

Gross Profit and Earnings 2001

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

15 81 16 15 4 0 2 0 0 1 1200

1000

800

600

400

200

0

–200 < 0 0–25 25–50 50–100 100–150 150–200 200–250 250–300 300–350 >350

Ⅵ BGrossrutto gPerofitwinn Ⅵ RNetein Incomegewinn

In the year under review 97 institutes closed totalled 28% of the group’s gross earnings. with positive gross earnings below CHF 50 104 banks recorded positive gross earnings million; as a whole, this group attained gross below CHF 50 million. Their share of the total earnings of CHF 1.3 billion and earnings of amounted to 30%. CHF 670 million.The 19 banks with gross earn- ings between CHF 50 and 150 million attained a total of CHF 1.5 billion and earnings of CHF 933 million.Three institutes attained gross earn- ings exceeding CHF 150 million each, or CHF 931 million in total.The earnings of these three banks amounted to CHF 549 million.This corresponds to 27% and 29% respectively of the gross earnings and earnings of the foreign banks as a whole. In the previous year the six institutes with gross Source: Own Survey earnings of more than CHF 150 million each (2001: 134 institutes; 2000: 131 institutes)

14 Foreign Banks: An Overview

Value-Added distributed to Main Stakeholder Groups 2001

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

8 97 13 9 4 0 0 3 1800

1600

1400

1200

1000

800

600

400

200

0

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

Ⅵ Peersonnelrsonalau Expensesfwand Ⅵ STaxesteuern Ⅵ EarningsReingewinn

Banking value-added primarily benefits three The relation between individual income dis- stakeholder groups: the employees, the tribution categories differs only slightly state and the shareholders. The sum of per- between the classes formed on the base of value- sonnel expenses, taxes and earnings can thus be added. About 10% of income was distributed regarded as an approximate indicator of banking to the state, almost 60% to the employees and value-added. a good 30% to the investors. In the year under review the value-added distrib- uted to the three stakeholder groups amounted to CHF 6.4 billion (2000: 7.1 billion). 118 banks distributed up to CHF 120 million each among these three groups, paying out a total of CHF 2.9 billion.This corresponds to 46% of the total for the foreign banks as a whole. The three banks with a distributed value-added of more than CHF 300 million paid out CHF 1.4 billion or 22% in Source: Own Survey total. (2001: 134 institutes; 2000: 131 institutes)

15 Foreign Banks: An Overview

Importance of the Results from Commission Activities 2001

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

3 Banks >90%

22 Banks <40% 7 Banks 80–90%

28 Banks 11 Banks 70–80% 40–50%

24 Banks 50–60%

40 Banks 60–70%

This diagram clearly shows the great impor- tance for the foreign banks of commission activities.Their contribution to the net income of 58% in 2001 and of over 60% in previous years underlines this point. The importance of the other two net income components – inter- est 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. Here again, however, the year 2001 deviates from previous years as it brought a rise in net interest income from 23% to 26% and a slight decline in net income from trading from 12% to 11%. Sources: 1992–2000 Swiss National Bank; 2001: Own Estimates

16 Foreign Banks: An Overview

Structure of Net Income 1992–2001

Components of net income

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0% 92 93 94 95 96 97 98 99 2000 01 Ⅵ REesultsrfolg Z ifromnsge sInterestchäft Activities Ⅵ REresultsfolg K ofrommm iCommissionssionsgeschä Activitiesft Ⅵ REesultsrfolg H fromande lTsradinggeschä Operationsft Ⅵ OtherÜbrige Ordinarr ordentyl icRhesultser Erfolg

The importance of commission activities for each By comparison: per year-end 2000, results from individual institute can be derived from the net commission activities accounted for 84% of the income structure. In 38 institutes, results private bankers’ net income. Somewhat lower from commission activities accounted for were the shares of the brokerage and merchant over 70% of net income, reflecting the strong banks (68% and 54% respectively) and the big focus of theses banks on private banking activi- banks (42%). The commission activities con- ties.The results from commission activities of 22 tributed 20% and 27% to the net income of the institutes accounted for less than 40% of their cantonal and regional banks, respectively, or only net income.These banks focus mainly on interest 11% for the Raiffeisen banks. activities or trading operations. Among the other banks (75) commission activities accounted for 40 to 70% of net income. For these banks, interest and trading operations con- tributed an important share to the overall net income, besides the commission activities. Sources: 1992–2000 Swiss National Bank; 2001: Own Estimates

17 Foreign Banks: An Overview

Origin of Foreign Banks 2001

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 2.3% –1.5% Others 9 Banks 0.7% Germany 19 Banks USA and Canada 11.3% 23 Banks 19.5%

Benelux Other Europ. Countries and Israel 21 Banks 11 Banks 7.8% 1.0% Others EU/EEA 4 Banks Spain / Italy 0.7% Portugal 18 Banks Austria / Liechtenstein 4 Banks 13.8% 7 Banks 3.3% 0.1% United Kingdom 12 Banks France 21.3% 13 Banks 20.1%

The majority of foreign banks (98 institutes or group, the North American banks contribute 65%) comprises subsidiaries or branches of an 19% to the banking group’s earnings. EU or EEA bank. More than 10 banks each from Germany, the Benelux countries, France and Italy are present in Switzerland. Eleven banks or branches in Switzerland are from other European countries (in particular Russia and Turkey) and Israel. This means that 73% of the foreign banks in Switzerland have a majority shareholder in Europe. 23 (15%) 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 earnings of 78%. As second most important Source: Own Estimates

18 Foreign Banks at a Glance

Key Figures of the Foreign Banks 1997–2001

1997 1998 1999 2000 2001 Key figures: Institutional Number of Banks and Subsidiaries 152 149 144 150 150 Number of Branches 334 339 322 349 349 Employment (domestic) 14,484 16,124 15,841 16,987 19,418 Employment (abroad) 1585 1385 1352 1539 1600

Key figures: Financial Return on Equity 8.7% 14.1% 13.7% 15.9% 9.8% Earnings for the Year per Employee (in CHF 1000) 80 125 127 150 96 Gross Earnings per Employee (in CHF 1000) 175 212 211 258 176 Personnel Expenses per Employee (in CHF 1000) 151 157 171 183 180 Administrative Expenses per Employee (in CHF 1000) 230 241 265 285 279 Cost-Income-Ratio 56.9% 53.2% 55.7% 52.5% 61.3% Taxes in % of Earnings for the Year (before taxes) 25.8% 18.8% 21.0% 22.9% 22.1% Distr.Value-Added per Employee (in CHF 1000)* 258 311 331 378 304 Distr.Value-Added in % of Net Income from Banking Operations 63.8% 68.8% 69.7% 69.6% 65.9%

* = Personnel Expenses + Earnings for the Year + Taxes

Sources: 1997–2000: Swiss National Bank; 2001: 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]