Private banking across the decades

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In Euromoney’s first-ever issue, Nicolas Baer of Julius Baer contributed an article on how investors can cope with historically high interest rates. Investors were “fed up with losing money constantly within a short period when they buy bonds which fall because of rising interest rates”. Nicolas Baer was a regular contributor to Euromoney in its formative years

“What has done some direct damage [to Swiss private banks] is the unfortunate experience of the young scion of one of the most reputable banking families who ran into difficulties with the Swedish customs in connection with certain substances found in his luggage. Not that this should have mattered at all. Young bloods are permitted to sow their own wild grass, so to speak. But unfortunately, along with the substances were the names of a number of the bank’s most prominent clients”

“What is extraordinary about Julius Baer is that it is a Swiss private bank, a member of supposedly the most secretive band of financial animals in the capitalist jungle: yet, during several days spent at the bank’s head office, in what must have been the first detailed journalistic investigation, this reporter [Nicholas Faith] encountered a degree of frankness far greater than that prevailing in many supposedly more open Anglo-Saxon financial establishments”

“Money flowing into Switzerland, fleeing a dollar that had depreciated more abroad than it has at home, brought business to Swiss banks and problems with it. The big Swiss banks are beginning to frown over the increasingly oppressive political atmosphere.”

The rise of the Swiss franc against the dollar had led to a ban on foreigners buying Swiss securities – today, many Swiss bankers still frown about the oppression of politicians and regulators

“The private banks of Geneva love their privacy. Some had never talked to a journalist until two Euromoney correspondents entered their closed world.” So began Euromoney’s first cover story on private banking, in November 1979, billed as “the first full description of that world”. What emerged, we said, was “their stubborn faith, not only in their way of banking, but in their way of life”

“In the discreet atmosphere of Swiss banking, a new tussle is under way. On one side are the big three: Credit Suisse, Union Bank of Switzerland and Swiss Bank Corporation. On the other: the private banks. At stake is the lucrative business of portfolio management”

“US banks are on a private banking binge, and the competition is growing more fierce by the day. Private banking offices are proliferating from coast to coast as major banks pursue a market where prohibitions on interstate banking can be conveniently ignored”

Euromoney looked at the idiosyncrasies of the Swiss private banking client – from the one who hid a diamond in his forehead, to the ultra-high net-worth individual who kept radioactive metal in his safe deposit box – only discovered after his death, when his wife spilled the beans. In those days, you needed at least $500,000 in your account to get “an individually tailored portfolio management service”, the great and the good of Geneva and Zurich said.

“Private banking is a business that more and more banks want to be in. It looks easy: go to Geneva and buy one of the banks already operating there. American Express did that, and had the foresight to ensure that the old owner, Edmond Safra, would not compete directly for five years. The five years are up, and Safra has a score to settle”. Safra’s tool for revenge was Republic National Bank of New York. He sold it to HSBC for $10 billion in 1999. Like Amex, HSBC came to regret the deal. Safra remained a controversial figure until his death in Monaco in 1999, in a fire believed to have been arson.

In 1989 Euromoney came up with a great ruse – have a journalist pose as a potential private banking client, and ask: how easy it is it for an unknown caller to get one of those famous numbered bank accounts? How closely do the banks enquire about the source of the deposit in their efforts to avoid ‘dirty’ money? Most came out OK, but one bank provided lessons in how to get round legal restrictions and even joked that the reporter might be shot if she turned out to be a spy

Rather cheekily we asked: “When did the private banker reinvent himself as a personalized investment banker? Nobody quite remembers.” The UBS/SBC merger had brought about a “private banking empire with $580 billion in assets under management”. The direction of travel was becoming clear: investment advice and performance now meant more than walking the client’s poodle.

Meanwhile Ivan Pictet described “the art of private banking as gaining a client’s confidence to the point where he can accept underperformance when the market turns down”

Europe’s banks were hoping to take a leaf out of the US market by developing wealth products for the super-affluent. As such, a new joint venture between HSBC and Merrill Lynch had competitors anxious. Less than a year later, the JV came to an end – and Europe’s mass affluent market never rose to the heights its proponents expected nearly two decades ago

2004 was a big year for Euromoney in private banking – the year we launched our survey, which remains the benchmark for the global industry. Advice and independence were now firmly in the ascendancy, we wrote. In the meantime, we picked up on two subjects that remain core to wealth management discussions today: finding the right model for Asia; and trying to bridge the capabilities of their private and investment banking operations.

Plus ça change…

UBS was the world’s best private bank in the first year of Euromoney’s survey. The other members of the top three then, Citi and HSBC, have fallen since, to be replaced today by Credit Suisse and JPMorgan. Julius Baer only just scraped into the top 25 15 years ago. But in the slow-moving world of wealth management, most of the names remain the same

The first of several appearances on Euromoney’s cover of James Gorman. In 2004 he was shaking up Merrill Lynch’s wealth management business, tilting the firm away from Charles Merrill’s “Wall St to Main St” mantra to focusing on more-affluent clients. It wasn’t easy: “Here was this Australian with no financial advisory background,” said one hacked-off former employee. But Gorman’s recipe was working, and eventually got him the top job at Morgan Stanley

Although private banks were enjoying a period of growth alongside booming pre-GFC financial markets, top private bankers showed little consensus when we asked them to describe three key attributes for successful wealth management

The global financial crisis highlighted the vulnerability of private banks that had investment banks attached to them. UBS was the first big victim, but as losses on clients’ portfolios were starting to mount, the question was being asked: What level of commitment do universal banks have to their HNW clients when it is a small part of their overall business? It’s a question still being asked today

For the first time since its launch in 2004, the Euromoney private banking survey had a new global winner. Credit Suisse overtook UBS, as its great Swiss rival suffered in the aftermath of the GFC. Credit Suisse put its success down to better integration of wealth management into its overall business. Recent strategic overhauls at the firm suggest the integration wasn’t quite as successful as its management claimed nine years ago

Sallie Krawcheck, then president of Bank of America Global Wealth and Investment Management, described a “sea-change from the clients’ perspective” since the financial crisis. “Wealth management is no longer a spectator sport and they want to be more involved in the process.” She was one of eight global private banking leaders to detail how their firms were working hard to redeem reputations and improve services

Euromoney met the private bankers that were at the birth of an asset class that was only just starting to take shape: impact investment. Social impact and sustainability were being factored into allocation decisions, rather than simple philanthropy. Big advances, many detailed by Euromoney, have been made since – although the challenge of quantifying ‘impact’ remains steadfastly hard to meet

Five years ago, the concept of a ‘house view’ was new to most private banks. A select few were leading the way, as Euromoney revealed; chief investment officers were helping move private banks to an asset-managed based approach. Talk to senior private bankers today, and they’ll tell you a house view has indeed been a crucial tool to increasing profits and winning over clients

Prompted in part by JPMorgan winning best global private bank in that year’s survey, the first non-Swiss bank to win it, we wrote: “The playing field in private banking has levelled out and the US banks committed to a global business now compete on even terms with the Swiss. From here on in it will be technology and superior asset allocation advice that determines the winners.” The 2019 results suggest Swiss banks have proved harder to displace than we – or their US competitors – imagined

Last year, Euromoney gave the private banking industry a jolt: “The old concept of private banking is not fit for the modern age of finance. Wealth management is being dragged kicking and screaming into the 21st century.” We continue the theme with our 2019 cover story ‘Wealth management, the next generation’