The ZKB is withdrawing from Austria: a long overdue step

The Zürcher Kantonalbank (ZKB) is pulling the plug in Austria. It is selling its subsidiary there to the Liechtensteinische Landesbank (LLB). This brings to an end a chapter that was never able to inspire.

The investment was ill-fated from the start. Shortly after the purchase of the Salzburger Privatinvest Bank (PIAG) in 2009, various legacy issues at PIAG came to light. These included the misuse of customer funds, dubious clients and other inconsistencies that threatened to endanger the reputation of the ZKB.

Private banking in Salzburg is not a state task

The legacy issues were eventually dealt with. But the ZKB never got off the ground operationally in Austria. The aim was to gain market access to the EU and its wealthy private customers via a local base. With customer assets of 3 billion francs, however, the bank fell short of initial expectations. Now the LLB is taking over the business, the two locations in Salzburg and Vienna, and the approximately 120 employees for an undisclosed purchase price.

The ZKB’s decision is not only logical from a business perspective. It is also logical from a regulatory perspective. There is no reason why the taxpayers of the Canton of Zurich should take a financial risk for a bank’s foreign adventures. It is not the canton’s job to offer wealthy customers in Austria and southern Germany asset management. This service is offered by enough banks in the EU.

The withdrawal from Austria is long overdue. What’s more, the excursion to the eastern neighbour should never have taken place around fifteen years ago. It is difficult to justify why the state should be involved in the domestic banking business. Unlike in 1870, when the ZKB was founded, Zurich craftsmen and farmers can now obtain loans without state aid.

It becomes even more in need of explanation when companies with a state guarantee of survival start poaching abroad – whether they are called ZKB or Swisscom.

A widely distorted competition

Why is the ZKB coming to its senses? Probably not due to a regulatory purification. If the bank wants to focus on the existing markets in private banking and advance its strategic priorities there, there are more mundane reasons for this: firstly, the regulatory burden abroad is a deterrent. Secondly, the bank is not dependent on money from Austria. Revenues are flowing anyway, especially in crises. This was shown by the collapse of Credit Suisse, when a lot of money flowed into the safe haven of the ZKB; the state guarantee turned out to be a huge magnet.

In addition, “the local bank”, as the popular advertising promise goes, does not necessarily have to leave the country to be able to grow beyond the canton of Zurich. Thanks to digitalization, financial products can now be easily scaled across the country. One example is the “ZKB Banking” offering launched in December. It provides the option of opening an account digitally, so that people from all over Switzerland can be addressed. The fact that this is hardly what the founding fathers had in mind does not slow down expansion in any way.

Digitalization is blurring geographical boundaries. This is a blessing in free markets. Things get tricky when cantonal banks with a state guarantee increasingly operate outside the canton. This not only leads to increasingly distorted competition, especially since a state guarantee is equivalent to a subsidy. In addition, more and more risks that only have a marginal connection to the service mandate are being passed on to the taxpayer. The long overdue withdrawal of the ZKB from Austria does little to change this annoyance.