Safe-haven demand, which has buoyed the franc, has weighed heavily in recent years not only on the Swiss export industry, but also on some private banks, especially those who generate significant earnings in the euro region.

Julius Baer Chief Executive Boris Collardi for example said recently in an interview with «Bloomberg», that any franc weakening would have a positive effect on earnings. Collardi is hoping for a sustainable euro-franc level around 1.10 francs. The Swiss central bank’s decision in early 2015 to lift its cap on the franc hit Julius Baer hard, and triggered cost cutting.

Slight Dip in Demand For Swiss Franc

The current dip in demand for the franc will provide some relief for Collardi & Co. – at least for the time being. The Euro is now worth almost 1.15 francs, a clear jump from 1.0 to 1.10 francs in January 2015, in the aftermath the Swiss National Bank’s surprise move to scrap its cap for the franc.

This is a most welcome development for all banks and asset managers whose primary business is generated outside the Swiss domestic market. They are the financial institutions whose profits are earned in euros, but at the same time have a high cost base in Switzerland. The weaker franc means higher client assets, and thus higher earnings.

«In addition to private equity specialists Partners Group, this also applies to GAM, Vontobel und Julius Baer», according to Michael Kunz, banking analyst at Zuercher Kantonalbank (ZKB).

Smaller Benefits for UBS and Credit Suisse

The currency move has also impacted positively on the shares of the above-named institutions. With the exception of Vontobel, the shares of the others have made clear gains, although this can also be partly due to surprisingly good first-half earnings.

The two heavyweights - UBS and Credit Suisse - have derived less benefit from the softer franc since they have some of their cost base in the euro region, according to ZKB.

The UBS maintains its Europabank in Frankfurt, while Credit Suisse has in recent months relocated its trading and funds business from London to Dublin.

Stronger Franc As Fitness Test

While the strong franc has put financial institutions with substantial foreign business under considerable pressure, it has also reaped benefits. It has forced Swiss banks to get a better grip on their costs, more than is the case for its competitors in the euro area.

A further, lasting weakening of the franc could also result in higher profitability, compared to foreign rivals. Higher returns would then be available for either returning to shareholders, or for reinvesting in ongoing business.

Don’t Count Any Chickens

However: One swallow doesn’t make a summer, and the weaker trend for the franc needs to prove lasting so that it impacts on coming quarterly earnings.

Much will depend on political and economic developments in the euro region. At present the election of Emanuel Macron in France and the decline of the populist Five Star movement in Italy have reduced risks at the political level, while Europe - and especially Germany - is also benefitting from an upswing in economic fortunes.

In addition the euro is firming as the Federal Reserve remains reluctant to raise US interest rates. If these influences persist, there is a good chance the franc will trade at current levels for some time.