Observation from Switzerland
To say we have had an interesting start to 2023 would be an understatement. I just returned from a week in Switzerland where I had meetings in both Geneva and Zürich. This was the first time I had been back since the COVID pandemic and things seemed fairly unchanged. Prior to 2020, I would travel to Switzerland once or twice a year. In fact, climbing in the Alps was part of the inspiration for Alpine Strat’s name since mountaineering requires a combination trust (the partner with whom you are tied together, your gear, your technical ability, yourself in general) and ability to adapt to things that are completely out of your control. Nature, like macro events, does not care how prepared you thought you were.
In some ways it is unsurprising that a country with around a millennia history being at the cross roads of EMEA banking was not too noticeably impacted by the latest pandemic and banking disequilibrium when it survived the bubonic plagues and countless financial crises. It contrasted sharply with my experience in UK late last year where the economy and sentiment felt noticeably more tense than when I was last there in late 2019. However, there did seem to be an air of anticipation in Switzerland about what the rest of this year has in store.
The Swiss sometimes refer to the divide between the Gallic and Germanic sides of the country as the Röschtigraben. There seems to be a competition heating up between the major financial centers on either side of the line, Zürich and Geneva these opportunities caused by the latest financial market disruptions. Representatives from both cities saw opportunities for growth in share from the other and/or a deeper entrenchment of the power that some segments already hold.
I remember when I was living in London in the Aughts, London was jokingly referred to as the “third largest city in France” given the large French population who lived and worked there (greatly benefitting the culinary industry and derivative departments). Post Brexit Paris has been benefitting from financial industry repatriation and this seems to have had a positive knock on effect for its French speaking compatriot Geneva. In Geneva, where artisanal Swiss toothpaste sells for 25CHF per tube, things seemed busy. This activity was not just driven by the financial sector, but the role the city plays in geopolitics. The finance firms in Geneva seem to be making strides to further assert themselves in the public markets and global wealth management especially amongst the Ultra High Net Worth (UHNW) segment.
Zürich felt equally busy. For years the Swiss have been ahead of much of the rest of the world when it came to embracing digital assets and seeing the opportunity beyond crypto currencies. As a corporate and individual banking center, the city is able to even the scales when economic dislocation presents opportunity for banking on one side to make up for any temporary weakness on the other. Zürich, as well as Zug, has also been hospitable climates for incubating firms in the digital asset and distributed ledger spaces. This helps to ensure the city does not rest on its laurels and continues to advance with new industry dynamics.
Many Swiss firms have invested heavily in their US businesses or in building a US presence over the past 5-10 years. After a global travel lull during years of barriers and quarantines, the long term trend of higher net worth individuals living more global lives seems to have reverted. Swiss firms are looking to better serve their global clients, both individuals and institutions. They have an opportunity to take advantage of higher U.S. rates, a stronger CHF, and opportunities to take care, given financial market and industry volatility. US firms have also been looking for partners in Europe to grow their business and better serve their global clients. In light of how fast dynamics have been shifting over the past month, it is no surprise that there were more questions over sentiment rather than statistics.
In general, sentiment in the US and Switzerland feel similar. Contacts around the world have been remarking that everything seems to be taking longer to get done over the past six months. I have been describing this feeling as there seems to be more busyness than business. Switzerland may not have been untouched by recent banking relativity; however, it still is well positioned to provide both stability and innovative opportunity.
As some of the recent volatility in the banking/investment management space has stabilized, at least for now, we are seeing signs that M&A activity poised to meaningfully pick up as an increasing number of firms have been asking for advice around growth by acquisition, wether to merge with a peer, or be consumed by a much larger institution be in a better position to scale a niche offering. This is the latest in a trend since before 2020 were firms have not just eager for incremental growth, but felt that they needed to breach the next major milestone, whether that was getting over a Billion, 25 Billion, 500 Billion, or a Trillion in assets, to maintain their competitive position. For those firms that were looking to retain a boutique scale, there has been a demand to consolidate their support infrastructure (trading counterparties, custodians, tech/TAMP providers, etc.) to fewer solutions providers who have that mega scale so that they are able to run a small business on ever more powerful infrastructure. We see both of these trends accelerating over the rest of 2023.