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Swiss Market Report 2011 - Market Overview

We made the point, over a number of years, that cheap money would serve no good purpose. It allowed imbalances and bubbles to develop and the risk taking that ultimately undermined the banking system. Two years after the demise of Leman Brothers and the epicentre of the crisis, the global financial system has been sufficiently recapitalised to absorb an orderly workout of its debts. However, the fiscal woes of the eurozone still fester. The financial system remains fragile and a period of stability is required to allow recapitalisation to continue and ensure that there is not contagion and a new credit crunch.

The outlook for global growth has improved. However, it is widely accepted that the major structural flaw and therefore weakness in the global economy, is the unsustainable deficits and surpluses between key trading partners. There is also no recent economic precedent for the sustained low interest rate policy being pursued by Western governments. Whilst increased asset prices and spending are boosting growth, there is less clarity about the longer term potential damage this might do. In fact, to believe that the current monetary laxity will not result in inflation, requires a belief in the ability of central banks to make the type of judgements that they have historically been incapable of making. There is, not unreasonably, a suspicion that policy makers are attempting to inflate debts away. New asset bubbles are emerging which have the potential to cause further economic dislocation.

Within this context the Swiss economy, with low inflation and strong public sector finances, emerged from the global recession in better shape than many of its eurozone neighbours. Growth in 2010, despite the strength of the Swiss Franc was a highly respectable 2.6%. This was the result of global demand for Swiss made products together with robust domestic consumer spending. The recovery in the global economy helped the former and immigration the latter.

The Swiss economy is currently forecast to grow by 2.1% in 2011, an increase from the 1.5% forecast at the start of 2011. Whilst the short term outlook is encouraging, the strength of the Swiss Franc, which in the face of global uncertainty has its safe haven status very much intact, could take its toll. As it hits historic highs, the currency is becoming an increasing concern for exporters who are reporting a squeeze on their margins, together with tougher competition. Consumer spending is currently forecast to offset any weakness in the export sector.

One benefit of the strength of the currency is that the economy is less likely to suffer the inflationary consequences of higher energy and global commodity prices. Inflation during 2011 and beyond is currently forecast to be negligible.

Unemployment, although twice as high amongst foreign nationals, is now declining. Having reached a five year high of 3.9% in 2010, it is currently falling towards 3.5%.

Corporate Governance

The position of most Western economies is similar. Their banking systems remain fragile and the necessary deleveraging process is nowhere near complete. Low interest rates and various forms of quantitative easing, whilst containing the seeds of further problems, are facilitating this process. There has, however, been a shift in focus. Two years ago, the world faced a banking crisis. The agenda of the 2009 group of 20 leading economies was dominated by financial regulation. Then, globally co-ordinated efforts to regulate banks by reducing risk taking, controlling pay and raising regulatory standards were promised. In their more recent meeting, financial regulation was only discussed in passing.

Globally, the most significant development within corporate governance has been Basel III, the Basel Committee on Banking Supervision’s latest reforms. These reforms will need to be phased in by 2019 and require banks to significantly increase their capital requirements. Whilst these reforms have become essentially a proxy for tougher global regulation, more fundamentally the Dodd-Frank Act was passed in the US. Within two years it aims to curtail risks by outlawing the practice whereby banks can deal in their own capital by engaging in proprietary trading. However, by requiring the banks to hold more capital as a reserve against their trading activities, all forms of trading will become more expensive and less profitable. The argument against this is that it is likely to push the risks away from the banks and into the less regulated areas, such as hedge funds.

Given the size of the banking industry in Switzerland and its systemic importance to the country, particularly where the two largest banks, Credit Suisse and its domestic rival UBS, employ tens of thousands of people and have balance sheets several times the size of Swiss GDP, Swiss regulators want an iron clad financial system. This is to be achieved principally by requiring banks to increase their core Tier 1 capital and contingency reserves up to 19%, a level significantly beyond that required by Basel III. Whilst strong, more capital intensive banks will be less profitable, the “near death” experience of UBS was a sobering experience.

Outside of banking and the wider financial sector, the financial crisis and recession had few lessons for corporate governance in Switzerland.

Given the success of the current Swiss corporate governance regime it is not surprising that there have been no further legislative initiatives. Developments during 2010 were principally driven by companies looking to develop and co-ordinate their corporate governance functions. Increasingly internal audit, risk, legal and compliance are seen as complementary functions and are being brought together and more closely co-ordinated.

Market Profile

Switzerland is a modern market economy with both a highly skilled and specialised work force and one of the highest per capita incomes in the world. It is also one of the most stable economies and its financial and political stability within the centre of Europe has made it an attractive base for international organisations.

The Swiss recruitment market is far more international than most other countries. There is a predominance of multinational companies engaged in financial services, manufacturing, chemicals, pharmaceuticals, commodities and energy.

English is the language predominantly used by the multinational groups. They are clustered in two main areas. These are the French speaking Cantons of Vaud and Geneva and the German speaking Cantons of Zurich, Basel and Zug. There are also a number of regional banks and public bodies spread throughout other Cantons.

Geneva is the predominant centre in terms of the total number of corporate governance functions and is well represented by private banks, FMCG and manufacturing groups. Zurich predominates in banking and financial services and Basel in pharmaceutical and technology groups. Zug is starting to feature as a destination for companies from a wide range of sectors looking to take advantage of its low business tax regime.

The financial services industry is the biggest employer of internal auditors, compliance and risk professionals and there is a higher percentage of expatriates working in these disciplines in Switzerland than in any other western European country. In Switzerland, historically the scale of the domestic departments, many of which have multinational responsibilities, far out-weighed the capacity of the Big 4 to provide local recruits. Prior to the recession this mismatch was exacerbated as companies responded to higher standards of corporate governance. This put a further strain on the local pool of expertise. As a consequence, in the period leading up to the recession, there was a steady influx of recruits from other European countries. The recession resulted in a brief period when expatriates were essentially excluded from the recruitment market. However, the number of expatriate recruits is now returning to pre-recession levels.

The increasing strength of the Swiss Franc, which is unlikely to be a temporary phenomenon, will continue to result in foreign companies questioning the cost of basing corporate governance functions in Switzerland. The increased cost base offsets the advantageous business tax regime.


Modern corporate governance requires the necessary structures and capability in internal audit, risk management, compliance, legal and information security. It is clear that in financial services and the consultancy sector employers are now seeking candidates with skill sets that are more broadly based rather than simply specialists in one discipline. Understanding enterprise and operational risk management, compliance and legal frameworks and having a full range of skills is seemingly where the recruitment market is moving.

Internal & IT Audit
Historically there has been a significant disparity between the local supply of appropriately qualified and experienced internal auditors and the demand for their services. Whilst the recession resulted in a temporary collapse in demand, and a tightening on immigration procedures affected supply, post-recession it is clear that the demand for qualified internal auditors is increasing beyond the capacity of the local market to provide them.

Regulatory developments in the banking and wider financial services sector has resulted in an increase in demand for risk specialists, particularly those with experience in treasury and liquidity. Candidates are in short supply and when looking to move often have the luxury of multiple opportunities to choose from.

Compliance specialists with experience of cross border transactions particularly between Switzerland and the US and/or UK were in demand through most of 2010. This focus has changed in 2011, with anti-trust and anti-fraud experts in highest demand. As with risk management this is being led by regulatory developments.

Corporate Governance
In the Swiss recruitment market, interview and broader selection processes became noticeably tougher during 2010. Whilst such a stance is easier for companies to sustain when candidates are more readily available, it is unlikely to be a temporary phenomenon. Good corporate governance is becoming more valued and this is reflected in the quality of the people who hold key positions.

Switzerland remains an attractive country for auditors to work in for both lifestyle and financial reasons. During 2010, the vacancies that were open to foreign candidates attracted significant responses. Typically recruits were from France, Germany, UK, US and Spain with smaller numbers from the wider EU region and Russia. A feature of the market and one governed by the preponderance of multinational groups, is the high degree of travel that the more junior staff must undertake. For many local hires their immediate objective, even above salary and career advancement, is to reduce the amount of international travel. For that reason, even as the Swiss corporate governance recruitment market matures, non-Swiss candidates who are prepared to travel extensively are likely to remain essential to the recruitment market.

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