Mr. de Picciotto, UBP is announcing a 25% jump in profits to CHF 220 million for 2017, while assets under management rose 6% to CHF 125 billion. Business in private banking appears to be buoyant. What is driving it?
There are three components: when the market is booming, wealth managers like us do well. Clients and bankers become more “transaction-hungry”. The second income generator was Coutts, which we acquired in 2015, and 2017 was the first full trading year since it was consolidated. Thirdly, because of regulation far more of our clients have signed advisory mandates in recent years. Advising and managing client assets can now only be delivered through mandates, which has a positive impact on management fees. In the past, a bigger proportion of our clients were handled on an execution-only basis, which meant the client gave us trading instructions without us having given him advice. Advisory mandates lead to more intensive communication with our clients, and in turn to more transactions.
“The regulatory requirement to discuss investment decisions with clients is increasing revenues.”
Why does regulation lead to more mandates?
The EU’s MiFiD framework legislation and rules governing cross-border client contact with Switzerland mean that you now often have to enter into an advisory or a management agreement. In most countries now – not just Switzerland – we can no longer simply carry out transactions when the client phones us. We are required to act within the framework of a signed mandate if we want to take investment decisions with him. This is also having a positive effect on management fees.
What predominates: the rising cost of regulation or the intensification of the client relationship?
Costs are rising, of course. Yet they tend to have a one-off impact, when we need to adapt our systems and processes. Take MiFiD for example, where we now have to separate research from brokerage. It has meant introducing a new model. Once it is up and running, however, the ongoing additional costs are minimal.
Is most of your investment required by the new regulations now behind you, and will efficiency continue to rise?
Definitely in the case of the regulations that we have already had to implement, such as FATCA, MiFID, and common reporting standards for the AEOI. Our cost/income ratio in 2017 improved from 68% to 64% compared to the previous year. That said, you never know what the regulators are going to come up with next.
UBP has been very active in terms of acquisitions: ABN Amro’s Swiss subsidiary in 2011, Lloyds Bank’s international private banking business in 2013, Coutts in 2015. Is that pace set to continue?
We have been able to take full advantage of the consolidation occurring in Switzerland’s banking sector. That being said, the window is now closing in terms of attractive acquisition opportunities: the new regulations are largely in place, the market outlook is brightening, the Swiss franc is weakening and interest rates are on the rise. All this gives the banks more breathing space. I think that there will now be a pause in consolidations.
Does your focus now lie on organic growth?
We have to get back to organic growth. I would be happy if we could bring assets under management up to CHF 150 billion in the next two or three years, while keeping our cost-income ratio at the same level. However, if I am wrong and acquisition opportunities do present themselves, we will of course examine them. Right now, though, I personally see no opportunities in the market.
But your appetite to acquire persists?
Sure, but acquisitions are most likely to take place outside of Switzerland, such as in London. An acquisition in Asia, where we really want to increase assets under management, would be of particular interest. We also want to grow in Luxembourg using EU passporting rights.
“There will now be a pause in consolidations in the Swiss financial sector.”
It has been a year since you acquired Coutts: is your Asian business now profitable?
We now employ some 250 people and manage more than 10% of our total private banking assets there. It means we are in the black – just. We would like to grow the amount under management by CHF 3 to 5 billion – organically or through acquisitions.
In your plans for growth you mention London or Luxembourg – why? You already have a presence in those places.
The lack of access to the European market is a problem for banks whose booking centres are exclusively located in Switzerland – but it is also a major issue for us. On the one hand, EU citizens want to book their assets in Switzerland: they like our country’s stability and its institutions. On the other hand, private banking is an export industry, so we need access to the market to be able to offer our services.
You do not believe that market access is coming and orient yourself accordingly?
Europe is preoccupied with the Brexit negotiations. Switzerland needs a framework agreement with the EU, but there are opposing political forces. We do not think that businesses in Switzerland will be granted market access any time soon – and we want to grow in London and have EU passporting rights through Luxembourg.
Does Swiss regulation – in the form of the “Swiss finish” (enhanced requirements applicable to Swiss banks that go over and above international norms) – get in the way of your growth?
Unlike many colleagues, I believe that Swiss regulation presents very few problems. I can tell you that some of Singapore’s regulators are far tougher. Nevertheless, I do find it hard to understand why we have to implement two different sets of codes of conduct and client protection measures at the same time, i.e. the Swiss FIDLEG and the EU’s MiFID.
How do you feel about the capital requirement rules?
My feeling is that the “Swiss finish” in that area is actually a good thing. It boosts confidence in Switzerland’s financial sector. But even more stringent capital requirements would not really add to that confidence. The current level is the limit beyond which it would cease to be useful.
Is UBP suffering from the negative interest regime?
We have CHF 2.8 billion worth of our equity deposited with the SNB, and some CHF 3 billion worth of client money is held in current accounts at our Bank, as well as Swiss francs arising from hedging positions of euro and dollar holdings. We would not be doing this if it was not worth it.
Do you charge the negative interest to the client?
Yes, if the client has a lot of cash deposited with us and is not keen on other investment solutions. We always look at the client relationship as a whole. However, many customers expressly want Swiss francs – even if it means being charged negative interest of up to 0.75%. Security often takes precedence over cost.
You are painting a wonderfully optimistic picture for private banks.
The last few years have seen conversations with clients focus primarily on regulation. That focus is now shifting back to our core business: wealth generation. This is leading to an appreciable rise in transaction activity – especially when the markets are doing so well.
About Guy de Picciotto
Guy de Picciotto, 57, is the Head of the Geneva wealth management bank Union Bancaire Privée (UBP), which was founded in 1969 by his father, Edgar de Picciotto. After his business administration studies at Webster University, de Picciotto worked as a business consultant in Geneva and Brussels. In 1988 he joined UBP, which at the time was still Compagnie de Banque et d’Investissements. He has been CEO since 1998. As at the end of last June, the bank was managing CHF 119 billion worth of institutional and private clients’ assets, making it one of the ten biggest wealth managers in Switzerland. UBP employs nearly 1700 staff in over twenty locations around the world. The bank is owned by the de Picciotto family.