Interview: Sven Millischer
Photos: Eddy Mottaz
Stock markets are plunging, wealthy clients are holding back. How's business at UBP?
Guy de Picciotto: Of course margins are under pressure. The low returns and high volatility on the stock markets are challenging. And the strength of the Swiss franc and negative rates are not helping.
Is UBP passing on the negative interest rates to its clients?
Only very marginally. Interestingly though, there are clients who are prepared to share the costs.
Foreign ones, many from neighbouring countries, who don't want to be invested in euros or dollars and are prepared to pay for that. The Swiss National Bank's negative rates are a testament to the fact that the Swiss franc has real value.
How is UBP dealing with the negative rates?
At this stage we're not suffering because we're hedged in dollar and euro. We have had to factor in the situation because it's persisting.
You have mentioned the tricky economic conditions. What measures has UBP taken?
The calculation is simple: either you rein in your costs, or you make sure you grow more. We were lucky enough to integrate Coutts EMEA already last spring, which brought in extra assets. So we’re a little less under pressure than our competitors.
You mentioned the take-over of Coutts International, which UBP bought from RBS for several hundred million dollars a year ago. How is the integration going?
Given the size and duration of the transaction, the integration has gone pretty seamlessly. Our first step was to integrate the Europe and Middle East businesses, i.e. Zurich, Monaco, Dubai and Geneva. Then it was Asia's turn, and we were waiting to obtain a Hong Kong banking licence. This is why we only completed the transaction in April.
Were there any surprises?
The amount of outflows of client assets was limited. We had an asset deal with RBS, whereby we had to compensate them only for the assets we were able to book.
We're building new teams and blending the two companies' corporate cultures. At the same time we're having to learn to manage much higher volumes in Asia.
Coutts International had several hundred staff in Zurich and Asia. How many are still working for UBP?
In Zurich, more than a 100 people from Coutts stayed on with us. In Asia we took over more than 250, of which 70 are relationship managers. We want to increase that number.
At the moment we have ten billion francs in assets under management in Asia, spread between Hong Kong and Singapore. Operationally we are just about breaking even. That's not good enough. We must bring in new relationship managers to boost growth and profitability.
What are your goals in Asia?
We want to have 25 percent of our asset base coming from wealth and asset management in the region within five years. The current proportion is 12 percent. In absolute terms this means that 14 of the 120 billion francs we have under management is booked in Asia. To attain our growth objectives in the region, we need to increase the number of relationship managers by a third in the next few years.
All the banks want to grow in Asia. What makes you think UBP will find the right people?
We’re aiming at experienced relationship managers who see in UBP a family-managed, entrepreneurial, Swiss bank as an alternative to the established players in Asia and the big banks. But we won't rush into it because this is a challenging recruitment drive.
How do you differentiate between Asian and European clients?
Wealth management needs are the same the world over. Asians are just a little more active. They trade more and also want to use the bank's balance sheet for that.
But Asians look more closely at fees.
Asians' acute sensitivity to prices is a myth. Non-Asians also look at the offering in detail. The Bank is under the same amount of pressure in all of the world's regions, whether as regards services, performances or fees. This is the new normal in today's negative-rate and low-return world.
How can you relieve that pressure?
By providing our clients with a first-rate service, good products, and the most comprehensive advice possible.
That's what all banks say. What makes UBP different?
Being a family-run bank we can make quick decisions. We also have an integrated approach with in-house products for institutional clients, which we also offer in Private Banking. Our proprietary investment ideas have been the key to our success since UBP was founded in 1969.
While we're on the subject of the key to your success, how do you see Switzerland's future as a financial centre?
Switzerland is well positioned, being a stable country with a strong currency, reliable regulations and a strong rule of law. And even with the tightened regulations on wealth management in the last few years, interest from foreign clients in our financial sector has not waned.
Where do you see the biggest demand?
Banks here are missing unlimited access to EU markets. We are no longer allowed to acquire new clients in the European Union out of Switzerland. To get comprehensive advice, our existing clients have to travel to Switzerland or sign a management mandate.
What does this mean for UBP?
Because Switzerland is not likely to gain equal access to the EU market in the foreseeable future, we have to reposition ourselves. So we’ve decided to set up branches of our Luxembourg subsidiary in some other countries in order to gain European passporting rights. In the next six to twelve months we'll be opening an offshoot in Italy. Then it will be Spain, the UK and later perhaps also France. We're also considering founding some other new subsidiaries.
"In five years we want 25% of all our assets to come from clients based in Asia"
What will the longer-term implications be?
If Swiss banks can't provide services in the EU or acquire clients there, then our country will lose its competitive edge over financial centres like Luxembourg and London, which can operate freely, and therefore its ability to create value. This would weaken not only our financial sector, but also our economy as a whole.
The amount of Swiss private banks is diminishing. UBP is leading the consolidation. What is your next takeover target?
I'm satisfied with what I've got. I think the big consolidation wave is over in Switzerland. What we saw was essentially foreign banks that decided to pull out of the Swiss market. There weren't many domestic banks up for sale.
Some banks have been running losses for years.
Of course some institutions need to restructure and readjust. But selling one's own bank is usually the very last resort.
So UBP's appetite has been sated. How does it look abroad?
We want to grow in the UK and Asia, perhaps through an acquisition. But definitely not in the next two years. Besides, we're focusing on individual teams, and not banks.
Why the UK?
If voters reject Brexit, then we want to grow in London so as to develop our business on the British and European markets. The bigger an outpost we have, the easer it will be to bring in new clients, and new staff. Size is attractive. For banks, big is beautiful.
UBP is also active in the US. What are your hopes for your business there?
We have had an asset management subsidiary in New York for many years, and we also have an SEC-registered subsidiary, UBP Investment Advisors. The latter advises US clients out of Geneva. Now that the US Tax Program has come to an end, we want to develop our advisory services for US assets. The next step is to set up such services in the US. US clients tend to have a so-called home bias in dollars. We want to convince them to diversify their investments.
The US is considered the new tax haven. Have you spotted the trend?
Yes, we have seen an outflow of Latin American client assets out of Switzerland and into the United States. I believe the main reason is the upcoming automatic exchange of information. It forces clients either to regularise, or to look for other alternatives.
And those alternatives would be?
Because there is currently no exchange of information at all between the US and, say, Brazil, clients are seeing an opportunity to book their undeclared assets in the US. But that loophole will eventually be closed. I'm sure that in the long run the US will implement equivalent and mutual exchange of information.
In March your father died at 86. Have you never thought of selling the bank?
No, never. My father wanted UBP to last for 1000 years. Just let me deal with the first 100 years first.
Will you continue his legacy?
Our mission – that is my brother's as Board Chairman, my sister's, and my own as CEO since 1998 – is to carry forward our father's legacy. What's needed is continuity, not a change of direction.
Have there been any formal changes?
My sister Anne is now the Chairwoman of CBI Holding, my brother Daniel is the Chairman of the Board of Directors, and Marcel Rohner will be Vice-Chairman.
How important is the ex-head of UBS?
Marcel Rohner has a broad network and extensive knowledge of risk management. And as an experienced manager, he knows how large firms work.
Does the outside view help?
Definitely. It is extremely important that we bring in external expertise into the family bank.
Your cousin Michael de Picciotto left the bank recently. Why?
He represented the bank for nearly 30 years. He wanted to take his career in a new direction. This year he started as acting board chairman of the multinational real estate firm Engel & Völkers.
You have two sons in their early twenties. Would you like to see them go into banking?
Of course, but we won't find out for a few more years.
What are they both doing now?
One of them is a consultant for McKinsey. The other is working for a tech startup on the campus of the federal technical university in Lausanne.
The banking sector has also been bitten by the entrepreneurial bug. What do you think of fintech?
There are roughly three areas where the digitisation trend is driving us. The first is client relations. Everything we do to get in touch with our clients. Whether for transactions, reporting, or investment ideas, we can improve our interaction with them thanks to new tools. The second area is institutional clients. In many fields we're still working in quite an old-fashioned way. We need less paper and more technology. The third area is big data, where we need to better understand our clients' needs and therefore adapt our investment solutions. I also hope fintech can lead to some more progressive regulations. For example, for the identification of clients over the Internet.
They say your IT platform is obsolete.
It's true that our platform is quite old, but it's not obsolete. Our system has two advantages: it's quite cheap to maintain, which allows us to save resources for other areas. With our last acquisitions, we were able to compare our IT platform to those of the banks we were acquiring, and established that we are generally holding our own.
Coutts International was running on Avaloq.
Yes. We had originally hoped to take over the Avaloq system from RBS. Unfortunately that didn't work out.
UBP has outsourced its back office in Asia. Is the head office in Switzerland going to follow suit?
It would be simply too expensive and too risky for UBP to subcontract all its back office operations on its own and be dependent on an external provider. But if several banks were to get together to share a platform, I would welcome that.