Reports of RBC talks to sell Swiss unit not a surprise

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Rumours that Royal Bank of Canada is in advanced talks to sell its Swiss private banking arm is hardly a surprise, given that shifting financial regulations in Switzerland have made private banking a challenging industry for foreign banks operating there.

Bloomberg News reported that RBC is in advanced talks to sell its unit to Banque Syz SA, a division within the Syz Group, a privately owned asset manager with 28.6 billion Swiss francs ($37.7-billion) in administered assets globally.

Spokespersons at RBC and Banque Syz declined to comment on the matter, but the speculation is certainly well grounded.

In November, RBC said it was launching a strategic review of RBC Suisse. Although RBC has tapped wealth management as a growth area for the bank, its focus outside Canada has been been centred around high net-worth clients in the U.K. and the United States, where it recently struck a $5.4-billion (U.S.) deal to acquire City National Bank.

Switzerland, on the other hand, is in the midst of regulatory changes, ending years of banking secrecy as banks share client data with foreign governments. The changes are driving up the cost of business and spurring a round of industry consolidation, especially among some of the weaker players.

"While it is important to ensure cost-efficient operations in order to remain competitive ... cost cutting may be insufficient to survive in the increasingly transparent global private banking industry," KPMG said in a recent report on the future of Swiss private banking.

One Swiss banker told the Financial Times earlier this month that private banks needed at least 15 billion Swiss francs in client money to be able to handle the costly new regulatory environment. If he's right, RBC Suisse was far too small, with assets of just 2.1 billion Swiss francs, according to its 2014 annual report.

RBC is by no means the first bank to make this realization: Morgan Stanley sold its Swiss private banking arm, with assets under 10 billion Swiss francs, in 2014 to Bank J. Safra Sarasin AG. Bank of America has also sold its Swiss private banking operations. And Standard Chartered announced earlier this year that it was winding down its operations after failing to find a buyer. Standard Chartered had assets of 2.1 billion Swiss francs in client money in Switzerland, or roughly the same as RBC.