Winston Churchill famously said that you should never let a good crisis go to waste. Currently, we are seeing a few different crises at the same time. Some financial institutions, such as private banks, have endured many crises in the past. So how did they deal with them and even prosper? Tanya König of finance.swiss traveled to Geneva to meet with Grégoire Bordier, president of both the Swiss Private Bankers Association and the Association of Swiss Private Banks, to find some answers.
You’re the President of the Association of Swiss Private Banks as well as of the Swiss Private Bankers Association. Now, to the layperson, these two organizations sound the same. What makes them different?
They’re quite similar in nature, but actually legally they’re slightly different. The Swiss Private Bankers Association is an association that regroups the Swiss Private Bankers. It’s a label that is protected and that regroups banks that have partners with an unlimited liability.
Meaning that if there is anything that happens to the bank, they have to put their entire net worth, their fortune, their family wealth against the problem that they have—and therefore it’s an unlimited liability toward any problem that you have in the bank. As for the private banks, they are structured often as partnerships. They’re family owned but at the same time, they have a structure that is a limited liability corporation, so in case there’s a problem in a company, they will lose all their capital, which can be substantial and for some families it’s a large percentage of their net worth, but it will not be all their net worth.
The average operating history of the members of both associations is over 170 years, meaning these institutions went through several financial crises, economic cycles, wars, geopolitical tensions—and they endured. How did they persevere?
If you look at the very early days of the structures of the banks, it is quite special because these private banks were created around asset management—the trust that Swiss people, but also foreign people, put in the institution to conserve, to maintain their assets and their capital, invested over time, perhaps grow this capital with inflation. And one went to Switzerland because of the stability of Switzerland and the strength of the Swiss franc. So the business model is, of course, very different from a universal bank or even a commercial bank. We don’t act as lenders of money, we just basically are the intermediary between the markets in a broad sense—it could be the bond market, it could be shares, or other products that are offered by the market—and our client. So as the intermediary between the two, we are asset managers. We’re not lending any money to anybody, so the structure that [this] basically brings is a very solid and very safe structure. Because you don’t have this issue of “I’m going to lend for mortgages or housing” and then you have movements in the market, movements in the global industry that can impact your ability to recover your funds when you lend them. And then you have a problem giving it back. So this structure of asset management allowed [us] to go from cycles because the risk involved in asset management is far less. The client takes the risk of the volatility of the market, but he doesn’t want to take the risk of the bank and the establishment. And therefore, in asset management, you have a great longevity.
You mentioned already that you cater to an international audience. Your clients are everywhere, and on the website of the Association of Swiss Private Banks it says that the members owe their reputation also to their openness to the world. Currently, we are seeing a fragmentation of the global economy. So what are the value propositions of Swiss banks in a multipolar world?
The multipolar world by definition—as you can imagine—creates some tension among countries and these tensions create insecurity. This insecurity is always the very big difference that you’re going to find between some countries and Switzerland, where people are going to look and say, “I have a certain amount of wealth, I’d like to have, of course, a certain amount of security, where can I find this security?” And Switzerland is clearly at the center of that security. It is secure because it has a very stable government, it has a full democracy, it has a very stable Swiss franc, and it has regulators that are extremely tough and are present in every institution. This security is what actually will bring clients to us. So a multipolar world benefits environments that are like that. Switzerland by the way is not the only one, but it is the main one. In addition, it gives us an opportunity to provide quality service to our clients and go to them with a service that is very international and they will find themselves as if they were dealing in their home country but, again, with a system, an institution, that is more stable and more secure. That, I think, is what appeals to a lot of our international clients.
Last month, March 2023, of course, UBS agreed to buy Credit Suisse, leaving Switzerland with only one large international bank. What does this mean for the Swiss Financial Centre?
In the question you kind of give part of the answer, which is that you now have one universal bank in Switzerland and not two. Universal banks are banks that are providing access to a large part of the world, they have offices everywhere, they are providing services in a large scale of our industry, not just asset management. They have investment banking, they have the treasury, they’re helping banks move assets from one place to the next. They are pioneers in certain markets. Having one less is one less pioneer. You also have for these banks the ability to provide some services that are key to an economy. They can basically, as I said, access global markets, and now we’ll have only one player. It will have an impact also on the financing and ability to finance for corporations in Switzerland. All these things are very unfortunate. We feel that we’ve lost a piece of our advantage that we had before. But at the end of the day, UBS will put it together. There are going to be some discussions about how you can restructure the industry to make sure it remains competitive because that’s a fundamental element for the future success of our industry: competitiveness. I’m not afraid of the future, but I think it’s a sad moment to have Credit Suisse bought by UBS.
You actually mentioned that you’re not afraid of the future. I would just like to go back to Churchill’s quote of never letting a good crisis go to waste. So I wonder how we can use the current crisis to our advantage. And you as a fifth-generation private banker looking into the future, what can you recommend to all stakeholders to foster a sustainable financial industry?
What we’ve seen in the merger between Credit Suisse and UBS is, of course, something quite special. We had a crisis in 2008, and we had a completely different crisis in 2023. And we have an opportunity here to go back and really ponder over what actually are the reasons for these crises. We now can say reasons, not just reason. But there are probably other things that can happen to large universal banks. We’ll have to take that into consideration. We’ll have to really think about the steps that are needed to protect a financial industry against that. It is an opportunity to have that crisis here in Switzerland because like always when you have a crisis in your hometown, you’re going to be focusing more on the various issues that it brings, but also on the solutions that you have available. So the idea—I hope it will come to fruition—is that they need to find solutions to better surround these universal banks. These ideas will certainly be shared with other countries—I don’t know if they will pick some of the ideas that we’ll bring together—but for the Swiss financial industry, it will really be an opportunity to strengthen our position. And that combined, again, with the dynamics of our industry, which are very positive, I think will allow us to have an even stronger financial industry in Switzerland in the future.