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Swiss private banks could be forced into a renewed round of painful cost cuts, mainly to cushion them from what looks to be a persistently strong Swiss currency, according to experts.

Rivals are likely to follow Julius Baer Group AG (BAER.VX), which Thursday said it will slash spending for a second-half lift in profits due to the Swiss franc, which has gained 3.2% against the euro and 3.6% against the U.S. dollar since the start of the second quarter.

"Swiss industry is already hard at work addressing the structural cost issues associated with the strong Swiss franc, when revenues are often generated in dollars and euros. For the banks, it's more like 'business as usual.' They seem simply to be going through the motions of cost reduction, but the hard decisions have yet to be made," said Andrew Mountfield, Zurich-based managing director of Horvath & Partners Switzerland.

Up to 80% of the spending by Swiss private banks--for everything from paying private bankers to market research services and perks such as sponsoring of sporting or cultural events--is done in Swiss francs, according to independent brokerage Helvea. As the franc--which is currently benefiting from safe-haven status amid the euro-zone debt crisis--strengthens, this in turns squeezes bank revenue and profits.

Assuming the franc remains strong, which currency strategists generally do, the banks can either pay their employees less or move some costs cheaper locations overseas, where costs are more likely to be the same currency as revenue.

Large firms like UBS AG (UBS) and Credit Suisse Group (CS) are typically more diversified and can better match revenue and costs, and have moved thousands of back-office jobs to lower-cost locations like India and Poland. By contrast, smaller firms, with most of their operations in Switzerland, feel the squeeze. Early indications are that other banks are already scrutinizing their spending for more ways to save.

Zurich-based EFG International AG (EFGN.EB) said Thursday that it is looking for further ways to even the lopsided relationship between its costs and its revenue, even after shuffling its divisions in March to cut costs.

"Clearly, we have a mismatch between revenue, which with around 95% not in Swiss francs is predominantly foreign currency, and costs, which roughly 40% of them are in francs. Obviously, we would like ideally to address and close that mismatch, and the creation of the business divisions in March was a step in direction," EFG executive Keith Gapp told Dow Jones Newswires.

The problem is that typically private banking has thrived on the sort of white-glove services that cannot be easily outsourced to cheaper locations, and private banks haven't charged for services such as carrying out payments, which until now have been considered standard.

Now, with the double-whammy of stiffer regulation and a strong franc, institutions may become far more selective in how they tend to their wealthy clients.

About 64% of Basel-based Bank Sarasin & Cie AG's (BSAN.EB) costs are denominated in Swiss francs, against roughly 40% of revenue. A Sarasin spokeswoman said the bank hedges a portion of revenue from foreign subsidiaries in options to counter the franc volatility. Other than that, Sarasin wants to bolster profitability, in part through lifting productivity.

"Private banks may, for example, begin debating whether or not to give their clients free access to research. They might also want their senior private bankers to focus even stronger on high net worth individuals, while handing other clients to younger advisors," said Daniel Senn, Zurich-based head of financial services at consultant KPMG.

A spokesman for Julius Baer didn't elaborate on what areas that bank is looking to prune, and Vontobel Holding AG (VONN.EB) couldn't be reached for comment.

To be sure, the measures the banks can take aren't short-term ones, and won't help immediately alleviate the franc pain, which currency strategists say is set to persist for much of this year, in part because there is little sign of an end to either the U.S.'s expansive monetary policy or the euro zone's debt crisis.

"The franc is clearly overvalued, but the problem is that it can remain at these levels for quite some time--it needs a catalyst to reverse sustainably," Bank Sarasin currency strategist Ursina Kubli said.

That in turns mean banks will scrutinize their spending on information technology, distribution and staff, KPMG's Senn said.

"There is a pressure on spending, especially as regulatory costs rise, and when banks have to cut costs, they begin thinking about where it might hurt to cut, where they could save, and where it wouldn't harm their business," Senn said.

-By Katharina Bart, Dow Jones Newswires; +41 43 443 8043; katharina.bart@dowjones.com

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