Partners at Pictet, one of Geneva’s most
distinguished private banks, considered abandoning its commitment
to the unlimited liability model at the height of the financial
crisis.
The model, which is the cornerstone of
traditional Swiss private banking, means banks must have at least
one partner with unlimited liability for the bank’s
commitments.
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But Jacques de Saussure, a managing partner at
Pictet, said partners had discussed alternatives to the approach
when US investment bank Lehman Brothers collapsed in October
2008.
“We have looked at it,” he said. “When Lehman
collapsed it was not comfortable. We were looking at counterparty
risk in minute detail, partners were looking at details like ‘how
do you transfer money from one bank to another’. If you had a huge
transfer to make from one bank to another you had to do it in
several steps. Your question is very interesting, because we did
look at it [scrapping the unlimited liability business model]. But
it remains an important part of our business model and it would be
detrimental to get rid of it.”
The admission highlights the extent of the
turmoil felt during the crisis at even the most conservatively run
private banks. Pictet is among the founding members of the Swiss
Private Bankers Association, formed in 1934 after the introduction
of the Swiss Banking Law. It has 14 members, including the likes of
Lombard Odier, Mirabaud and Wegelin, which were considered to be
some of the main beneficiaries from the financial crisis because of
their reputation for stability and low risk investment
management.
Saussure forecast consolidation among some of
the smaller unlimited liability businesses, though said Pictet was
not committed to making acquisitions.
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By GlobalData“We do not want to buy goodwill, but create
it,” he said.
Saussure added it was better to acquire people
than businesses, saying acquisitions tended to be dilutive to
overall book value. The smaller banks are facing pressures on
rising regulatory and compliance commitments on the cost side and
have been hit until recently by declining assets under management
figures because of falling asset values.
Will Cain
