AS a graduate student 10 years ago, Theo Zimmermann wrote his thesis about Swiss banking. He found that some of the legendary Swiss banks made as much as 20 percent return on their equity in the mid-1960s. Today, says Mr. Zimmermann, Swiss bankers would be happy with half this return.
``Typically, the return is lower,'' says Zimmermann, an official involved in planning for the Swiss Bank Corporation in Basel.
Not only is the return lower, but the Swiss are planning for even tighter times ahead. Markus Lusser, head of the Swiss National Bank, predicts more competition and tighter margins in a market that many Swiss consider already ``overbanked.''
Few Swiss bankers would disagree with Mr. Lusser. In mid-April, the Swiss Cartel Commission proposed a sweeping deregulation of the 18 cartel-like arrangements operated by the banks. It attacked the price-fixing agreements on brokerage fees, foreign-exchange commissions, bank advertising, and custodian fees. And the commission suggested opening up competition in underwriting government bond issues - an area virtually dominated by the Big Three Swiss banks: Credit Suisse, Swiss Bank Corporation, and Union Bank of Switzerland.
``There will be a loosening of the cartels,'' predicted Lusser, speaking at an international management symposium last week at St. Gallen University. A final report by the Swiss Cartel Commission is due out at the end of June and the Swiss Bankers Association plans to issue its reply July 11.
The Swiss bankers also face continued competition from the 128 foreign banks in Switzerland. The Japanese banks are particularly fast growing. Nomura Bank has established an office and is planning to offer brokerage services. Fuji Bank and the Bank of Tokyo both have offices that provide Swiss-franc financing for Japanese companies. Sumitomo Bank holds a minority interest and has three board seats on Banco del Gottardo, a commercial bank in Lugano.
At the same time, the Swiss have increasingly found it more difficult to compete with the world's major financial centers. Switzerland ranks fourth behind New York, Tokyo, and London. However, a ``stamp tax'' on all securities and commercial transactions is forcing an increasing number of traders to take their business elsewhere.
``The stamp tax kills short-term trading,'' says Beat Schweizer, an economist with Union Bank of Switzerland.
``Other financial centers are growing more quickly,'' adds Silvia Matile-Steiner of the Swiss Bankers Association in Basel.
So the bankers have asked the Swiss government to eliminate the tax. Otto Stich, the Swiss finance minister, has said he will do this, provided the government gets an alternative source of revenue. This is a major task: The Swiss government received $1.3 billion, including $870 million from securities transactions alone, from the tax in 1987. This comes to more than 9 percent of federal revenues.
To make up the revenue loss, there is talk of adding a tax on insurance companies or trust accounts. These proposals also irk the Swiss bankers.
``Stich is being as pigheaded as can be,'' says Mr. Schweizer.
The Swiss bankers are also facing other changes from Bern - where parliament sits - because a money-laundering scandal earlier this year turned up the fact that organized crime uses Swiss banks to channel drug money. Legislation is under consideration which makes it a crime to use Swiss banks to launder illicit money. The legislation requires the banks to exercise ``due care'' when accepting new accounts. To gain the bankers' support for the legislation, a section was eliminated allowing the government to find the banks criminally negligent if they accept drug money.
Turning against criminals is part of a change in attitude in Switzerland. Two years ago the Swiss agreed to cooperate with the United States when US criminal laws are broken. The most recent example of this cooperation was the arrest of Adnan Khashoggi, a Saudi businessman, wanted in the US in connection with the anticipated racketeering trial of Imelda Marcos, wife of Ferdinand Marcos, the former Philippines President. Within hours of receiving the US request, the Swiss arrested Mr. Khashoggi, who is fighting the US extradition request. Several years ago, the authorities were reluctant to arrest wealthy businessmen wanted by the Justice Department.
These changes are all taking place against the backdrop of the further integration of Europe in 1992. Since most of the major Swiss banks have long had operations in the European Community, they do not expect to be excluded from the 12-nation group after 1992. (Switzerland is not a member of the EC.) The three major Swiss banks are all considering starting their own operations or purchasing commercial banks in Italy and Spain, countries where they have not had a major presence.
``We think those countries will grow the fastest,'' says Zimmermann.
Most analysts expect the big Swiss banks to adapt. They are all well-capitalized global banks. It is less clear, however, what will happen to the regional or canton banks. One banker hypothesizes that these banks might group together to form superregional banks, the same as in the US.
It is unclear what will happen to the traditional Swiss secrecy laws once the EC consolidates its tax laws. According to one report, $75 billion to $80 billion of the private money managed by the Swiss banks is invested with Swiss banks to evade taxes.
``If there is a requirement for mutual assistance for tax purposes, then we have a problem,'' says Mrs. Matile-Steiner.
The EC could also ask for more financial information from the banks, which do not have the same reporting standards as other European banks.
``All the banks in Switzerland have huge hidden reserves,'' says Schweizer, who suggests that the banks could get around this requirement by setting up affiliates, instead of branches, in the foreign companies. This would absorb more capital, however.
Operating in the EC is important for the bankers. Recently, for example, the mayor of Weil, a city on the Rhine, noted that many of the Swiss businesses in his region were opening up factories across the river in West Germany. Naturally, the Swiss banks will follow to serve these companies - assuming the EC allows them.