The only good news whispered among Geneva’s financiers, who are reeling from billions of dollars lost to Bernard Madoff and the unraveling of once-impregnable bank secrecy laws, might be the warmer reception Swiss moneymen are getting from Bangalore to Singapore.
Banque Cantonale de Geneve, the regional bank saved by the government nine years ago, is seeking clients in Asia and the Middle East for the first time after taking market share at home from Swiss rival UBS AG.
“These are niche areas for us at the moment, but we want to develop them,” BCGE Chief Executive Officer Blaise Goetschin said in an interview at his office on an island in the River Rhone, which bisects Geneva. “The ideal client is the entrepreneur living in India who studied at Harvard.”
BCGE is the oldest of Switzerland’s 24 cantonal banks, government-backed regional lenders that attracted assets last year as investors withdrew funds from Zurich-based UBS. The 10 biggest cantonal lenders, including BCGE, received 34.5 billion Swiss francs ($30 billion) of net new money in 2008, company reports show. UBS, the world’s biggest wealth manager, lost 226 billion francs in the same period.
“They have a strategic window of opportunity that they can ride for maybe 15 to 18 months,” said Teodoro Cocca, professor of wealth management at Johannes Kepler University in Linz, Austria, referring to the cantonal banks. “They have the allure of stability.”
BCGE may open offices in the Middle East and Singapore to woo wealthy investors, said Jean-Louis Platteau, the company’s head of private banking, in a report to clients. “Singapore seems to me to be the ideal site,” he said.
Madoff’s Ponzi scheme
Almost 41 per cent, or 436,000, of Singapore’s households will have assets of at least $1 million by 2017, compared with 39 per cent in Hong Kong and 28 per cent in Switzerland, according to a survey last year by London-based Barclays Plc.
Pictet & Cie, Geneva’s biggest closely held private bank, has offices in Singapore and Dubai. Julius Baer Holding AG, the country’s third-biggest wealth manager, received licenses last year to start offices in Cairo, Istanbul and Moscow.
BCGE’s bid to attract Asian and Middle Eastern clients may be helped by Geneva’s status as a financial center, Cocca said. That reputation was damaged this year when at least eight money managers from the city disclosed that they had investments with New York-based Madoff, who was jailed March 12 after admitting he masterminded the largest Ponzi scheme in history, a swindle that may have reached $65 billion.
Frankenstein Connection
The Swiss government dealt a blow to the country’s private banking industry a day later by promising to renegotiate its tax cooperation treaties with the US and European Union in an effort to avoid being blacklisted.
Cantonal banks, formed in the 19th century to provide funds to local companies that needed credit during the Industrial Revolution, are under pressure to develop new services or risk losing clients once the financial crisis ends and the country’s largest banks recover, according to the Swiss Cantonal Bank Association in Basel. Today, the companies manage one-sixth of the country’s deposits and together employ about 18,000 people.
“The arrival of so many new clients shows the potential for expansion and now the banks must work to keep them,” said Doris Fellenstein Wirth, a spokeswoman at the Swiss Cantonal Bank Association.
BCGE, started in 1816, the same year Mary Shelley began writing Frankenstein on the shores of Lake Geneva, has a cantonal guarantee of 500,000 francs for ordinary deposits, five times more than the government offers to competing Swiss banks.
Government guarantee
“We want to use the opportunity to take some of the share of the big banks’ market,” said Goetschin, 51, who’s also recruiting bankers in Zurich and Lugano. “Every time there’s a problem there’s a wave of new arrivals.”
UBS spokesman Serge Steiner said competition is “good for business.” Like the cantonal banks, UBS’s minimum for private banking clients is 250,000 francs. He declined to identify banks that were picking up customers from UBS.
BCGE attracted 12,600 new customers last year, increasing the total to 230,000, the most of any Geneva bank, said Goetschin, who worked for Credit Suisse Group AG in New York and Zurich before moving to BCGE.
Geneva’s government rescued BCGE in 2000 by setting aside 2.7 billion francs to cover bad loans. Regional banks in the French-speaking part of Switzerland, including Banque Cantonale Vaudoise and Banque Cantonale du Valais, lost money on loans backed by real estate in the 1990s when the economy stagnated for six years.
The low end
BCGE, which also has offices in the French cities of Annecy and Lyon, lured 1.2 billion francs of new money last year, pushing managed assets to 16.7 billion francs, and the trend continued in January and February. The bank’s goal is annual inflows of about 1 billion francs, Goetschin said.
Zuercher Kantonalbank is expanding its private banking operations to the European Union from its Zurich base. The largest regional lender posted an eightfold increase in new money last year to 16.4 billion francs.
While the cantonal lenders can’t match the sophisticated products of the bigger private banks led by UBS, they can target the lower end of the market, Cocca said. Wilhelm Blaeuer, head of investor relations at Banque Cantonale Vaudoise, agrees.
“Our focus is the ‘mass affluent market’ of clients with between 500,000 francs and 1.5 million francs to invest,” said Blaeuer, whose bank is situated 37 miles along Lake Geneva in Lausanne. “We target the bottom end of private banking or the top end of the retail market.”
