Easier in Switzerland to start a Bank from scratch than Buying a bank?

Easier in Switzerland to start a Bank from scratch than Buying a bank?

It is Easier in Switzerland to start a Bank from scratch than Buying a bank? Indeed it proves more feasible than purchasing an existing bank due to various challenges encountered by buyers in the acquisition process. Please do not hesitate to contact us at your convenience at connect@swissfintechpro.com

Why is it easier in Easier in Switzerland to start a Bank from scratch than Buying a bank??

One of the biggest paradoxes is that, on one hand, Finma (Swiss Financial Market Supervisory Authority) may be willing to issue new licenses to applicants lacking prior banking experience, potentially to encourage innovation or competition in the market while on the other hand sellers prefer to work with established banking groups due to factors such as trust, reputation, and a track record of reliability and expertise. Dealing with non-banking groups, particularly those without a history in the industry, could be perceived as risky or less preferable by bank Sellers.

Below a list of all the challenges a bank buyer in Switzerland may expect to encounter

1. Limited Availability of Targets: The pool of available banks for sale in Switzerland is relatively small, with many acquisitions having occurred over the past decade. Buyers entering the market may find that most desirable targets have already been acquired, making it challenging to identify suitable opportunities.
2. Legacy Issues: Some of the remaining banks on the market may have legacy issues such as, regulatory issues, non-performing loans, outdated technology systems, or cultural challenges or in some case be the target of litigation from clients. All those issues can be difficult to overcome. Starting fresh allows you to build a bank with modern infrastructure and practices.
3. High Acquisition Costs: The average prices of banks for sale in Switzerland are substantial, typically ranging from 75,000,000 CHF to 250,000,000 CHF. Such high costs can be prohibitive for potential buyers, particularly those without substantial financial resources.
4. Funds Availability: Acquiring a Swiss bank requires demonstrating immediate access to the necessary funds right from the outset of the process. Sellers typically require a clear and verifiable proof of funds at the onset to consider a buyer’s offer seriously. Bank Guarantees (BG) or Letters of Credit (LC) are generally not acceptable as proof of funds. Instead, buyers must provide concrete evidence of liquidity or financing capabilities. Notably, individuals listed on the Forbes billionaire list may have the credibility and financial standing to circumvent the need for traditional proof of funds documentation. A buyer that needs to borrow to buy from a bank will not pass Finma approval.
5. Opaque Market Dynamics: Swiss banks are often not openly listed for sale, and information about potential targets can be difficult to obtain. The secretive nature of the industry means that buyers may struggle to identify available acquisition opportunities until after a bank has been sold, complicating the search process.

6. Other Issues

7. Reluctance of Sellers: Swiss bank sellers may be hesitant to engage with non-regulated buyers or those without a strong financial track record. Even buyers with extensive banking experience and solid credentials may face resistance from sellers, who prefer dealing with established financial institutions or entities with proven regulatory compliance. I have seen a case where we had to wait 2 months from the time, we provided our client with information and proof of funds and the time when the bank answered that they did not want to enter in negotiations with him.
8. Resource-Intensive Process: The process of buying or selling a bank in Switzerland is resource-intensive, time-consuming, and costly for both parties involved. Sellers are particularly cautious about engaging with buyers who may not successfully navigate the regulatory requirements or complete the transaction, leading to a reluctance to entertain offers from non-banking entities.
9. Exclusivity Agreements: Once a seller enters a letter of intent with a buyer, they are typically bound by exclusivity agreements for a period of 6 to 12 months. This commitment poses a risk for sellers, especially when dealing with non-regulated buyers, as there is uncertainty about the buyer’s ability to meet regulatory obligations and finalize the sale.
10. Business Model Consideration: Acquiring a private bank in Switzerland inherently implies a commitment to the private banking business model. Attempting to purchase a bank with the intention of radically altering its core business model is not only discouraged by sellers but also scrutinized by the Swiss Financial Market Supervisory Authority (FINMA). In such instances, FINMA typically requires the buyer to file an application as if they were seeking a new banking license. This process ensures that any proposed changes align with regulatory standards and safeguards the stability and integrity of the Swiss banking sector. Therefore, prospective buyers should be aware that significant deviations from the established private banking model may encounter resistance and regulatory hurdles.

How to answer those challenges?

Challenge No 1 and 5: Opaque Dynamics: To address the opacity surrounding potential buyers lacking banking experience, a solution lies in hiring a seasoned professional with expertise in the market. This professional could undertake the task of identifying suitable targets, a process that may vary in duration from a few weeks to several months. In exchange for their services, the buyer would pay a service fee to the professional. Our company can facilitate this service, providing access to skilled professionals who can navigate the complexities of the market and identify viable opportunities.

Challenge No 6, 7 and 8: To alleviate concerns about the trustworthiness of buyers, sellers can take proactive steps such as subjecting their profiles to Finma, the regulatory authority. By seeking Finma’s approval and demonstrating their credibility as potential buyers of a Swiss bank, sellers can enhance trust and legitimacy in the eyes of potential sellers. Our company can assist sellers in this process, guiding them through the necessary steps and ensuring compliance with Finma’s requirements, thus facilitating smoother transactions.

Challenges such as 3 and 4 cannot really be solved: either you can afford to buy a Swiss bank and has the fund available either you don’t and there is no way around.

Challenge 2 and 9: Cannot be solved per se but can be avoided: Don’t buy a bank with legacy issues and don’t buy a bank to change its core business model.

BUDGET TO SET UP A SWISS BANK

PROJECT INFINITY CAPITAL BANK

Budget Breakdown for Obtaining a Bank License:

1. Initial fees to obtain the bank license:

During the application period, the total expenditure will be approximately:

• Professional fees and financial advisor fees for preparing the application, providing all necessary documents to support the application (including business plan and profit and loss projections over 3 years), attending meetings with Finma, and following up until the completion of the process: 1,090,000 CHF.
• External Auditor Fees: 100,000 CHF
• Finma Government Fees: 100,000 CHF
• Software Provider initial Fees for application purposes: 50,000 CHF
• Corporate address for application purposes (included in fees above)
• Provision of 2 Swiss resident directors for application purposes (included in fees above)

2. Capital Requirement

 Capital will only have to be fully paid within 6 months after Finma approval of the application. However, it’s essential for applicants to ensure they have sufficient capital reserves to meet or exceed these requirements as they will have to prove their capacity to pay the capital during the application period, thereby increasing the likelihood of approval by regulatory authorities. 

• According to regulatory requirements, the minimum capital requirement for obtaining a bank license is 10,000,000 CHF.
• However, it’s noteworthy that Finma has not approved a bank with capital lower than 20,000,000 CHF in recent years.
• In certain cases, such as for crypto banks, the capital requirement may be substantially higher, for example, 35,000,000 CHF.

3. One Year Operating Expense

The estimation of the funds required to operate a bank during its first year of operation is fairly accurate +/- 10%. Those are minimal costs. Software is a post that can increase a budget tremendously depending on the provider you chose.

• Board of Directors: A minimum of 3 additional persons, not employees but recipients of yearly fees. Typically, fees range from 75,000 CHF to 150,000 CHF per annum, depending on their level of expertise and connections.
• Employees: Initial staffing requirements may range from 10 to 17 employees. Key positions include CEO, COO, CRO, CFO, Head of Legal, Internal Auditor, and IT personnel (even if outsourced, internal oversight is necessary). Budgeting for average salaries for a year would be approximately 3,700,000 CHF, with an additional 10% for salary-related charges, totaling 4,070,000 CHF.

• Office Rental:
• Rental fees for a 400 sqm office space vary based on location, ranging from 100,000 CHF to 300,000 CHF per year.

• Office Fitting: The cost of office fitting ranges from 1,200 CHF to 1,600 CHF per sqm, depending on the desired level of quality and sophistication

• Computer Equipment: Budgeting for computer equipment, printers, scanners, etc., for 17 employees amounts to approximately 250,000 CHF.

• Outsourced Software and Maintenance: Initial setup costs for outsourced software and maintenance are estimated at 1,000,000 CHF for the first year. Subsequent years may require a similar investment of around 1 million CHF annually. These expenses cover the licensing and maintenance of Swiss/EU software essential for banking operations, including back-office functions. It’s important to note that the budget is tailored for a bank with up to 3 billion AUM; expenses may increase proportionally with higher AUM.

We are committed to providing you with exceptional service and personalized attention throughout the entire process. Our goal is to ensure that your application is thorough, complete, and accurately reflects your business objectives.

We would welcome the opportunity to explain why it is Easier in Switzerland to start a Bank from scratch than Buying a bank with you and to answer any questions you may have. Please do not hesitate to contact us at your convenience directly on WhatsApp by filing the form below or at connect@swissfintechpro.com