Outside of private banking, U.S. banks are most noticeable in Switzerland by their absence.

Daunted by a lackluster Swiss economy and the presence of some of the world's most formidable homegrown banks, U.S. banks have kept a low profile here. Banks such as Bank-America Corp., Citicorp, J.P. Morgan & Co., and Bank of New York Co. do handle corporate banking, but it remains limited.

"It's very hard to compete in the local marketplace against the big Swiss banks," said a spokeswoman for BankAmerica Corp. "What we bring to our clients really needs to speak to our strengths beyond what ... (Swiss banks) can offer."

That's why U.S. banks have found that the road to success in this tiny nation lies with niche strategies.

J.P. Morgan, for example, concentrates on advisory work, and Citicorp provides a limited array of corporate services from an office in Zurich. BankAmerica markets cash management and related services to multinational corporations, Bank of New York handles shipping and commodity finance through Bank of New York Inter Maritime Bank, a Geneva-based bank in which it holds a minority stake, while State Street Corp. is building up its custody and asset management operations.

In contrast, the same banks, along with others like Republic National Bank of New York, all run sizable private banking operations from Geneva.

"Switzerland is still viewed as a safe haven," remarked Georges Vergnion, chairman of Chase Manhattan Private Bank Switzerland. "It's still a major destination for offshore wealth."

With Switzerland bogged down in the seventh year of recession and with nearly 70% of local bank assets in the hands of Union Bank of Switzerland, Credit Suisse, and Swiss Bank Corp., U.S. banks have little incentive to expand their activities beyond private banking and dealing with Swiss multinational corporations.

"Keep in mind that the recession isn't over in Europe and Switzerland is overbanked," Mr. Vergnion observed.

The recession has done more than restrict business prospects. It has triggered losses-an estimated $36 billion of them-at Swiss banks, and forced many into painful restructurings involving major cutbacks. The big Swiss banks have also sought salvation abroad by expanding internationally, especially into capital markets and institutional and private asset management.

In the latest round of acquisitions, Union Bank of Switzerland last month reached an agreement to buy Germany's Schroeder Muenchmayer Hengst and Swiss Bank Corp. this month struck a deal to buy France's Banque Hottinguer-only a few months after buying Dillon Read in the United States and signing a joint venture with the Long Term Credit Bank of Japan.

Hundreds of branches in Switzerland have been shut, and scores of banks have folded or been taken over by bigger institutions. At yearend there were 403 banks in Switzerland, 20% fewer than in 1990, according to the Swiss National Bank. The number of branches had sunk 19%, to 3,543, and banking employment was down more than 8%, to 108,000. Small and medium-size regional Swiss banks are also trimming back and linking back offices to save costs.

"This process is not yet at an end," said Peter Buomberger, senior vice president and chief economist at Union Bank of Switzerland.

Mr. Buomberger said he "would not exclude the possibility" that two of the major banks might merge their retail operations or that one of the major banks might sell its retail business to another bank, including a foreign bank that wants to do retail banking in Switzerland.

Although Swiss banks all posted hefty increases in profits last year, the cutbacks and restructuring at home as well as the expansion abroad have yet to show up in results. Margins from international syndicated lending remain small, and big investments in capital market activities worldwide have yet to pay off.

Like U.S. banks, Swiss banks derive most of their income from private banking and asset management. Of nearly $3.3 billion in net profits at the Big Three last year, close to 55% came from private banking and asset management, according to figures released by the banks.

"Those earnings have always been there but no one realized just how important they were," remarked Hans Kaufmann, senior vice president and head of Swiss research at Bank Julius Baer.

Though Switzerland's big banks are free to restructure their operations, they have little control over a stagnant economy and a stream of international publicity about their failure to release information on funds belonging to Holocaust victims.

Bankers complain that their ability to expand at home, despite excellent communications and transport facilities and a highly educated work force, has been hurt by the country's failure to deregulate faster.

They say taxes on trading operations as well as restrictions on foreign investments and on residence and work permits for foreign-born experts in areas like derivatives have driven much of the banking business to London and New York.

They point out that in the 1970s similar taxes imposed on gold trading drove most of it out of Zurich to London.

So far, bankers and analysts see few signs anything will change soon, despite some indications of slight economic recovery.

"Switzerland is a country accustomed to steady growth, strong business activity, a fully employed labor force, high per-capita income, and overall price and political stability," observed Betty J. Starkey, sovereign risk analyst at Thomson BankWatch, the New York-based credit rating agency.

"Since the early 1990s, however, it has seen itself slipping on all these fronts, while at the same time becoming increasingly isolated in the middle of a strengthening European Union."

After nearly six years of decline or only slight improvement in the economy, other forecasts are equally guarded.

"Real GDP in the first quarter fell 1% below the level a year ago," observed Union Bank of Switzerland in a recent review of the Swiss economy. "We are not confident that on average 1997 real GDP will grow."

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