A view of the world from Geneva

As an investment bank, Lombard Odier impressed Jules Verne. Asset management came along much later.

Article published in Finanz und Wirtschaft, August 28, 2018, by Monica Hegglin

When the foundations were laid for private bank Lombard Odier in 1796, Geneva was not yet a part of Switzerland. It was not until 100 years later that the Central Bank was established and over 50 years later the the Swiss franc was birthed.

222 years ago, the first generation of Genevan bankers had just been ruined, having bankrolled the campaigns and courtly excesses of French King Louis XVI. The French state went bankrupt and the King was guillotined. For bankers, this meant ruin rather than returns. The French Revolution did nothing to improve things for Geneva. The traditional buyers of silk were dispossessed, imprisoned or dead.

Henri Hentsch started his business despite all these obvious adversities as a cloth merchant-cum-banker. He soon focused on banking, working exclusively on commission. The circumstances under which the bank was established demonstrate the risk appetite of an entrepreneur who at the same time wanted to keep his risks under control. Right from the start, the need for diversification was understood and actions were guided by the realisation that the business model needed to be adapted to changing circumstances, both materially and geographically. A Lombard Odier characteristic which remains to this day. Hence the recent words of Senior Managing Partner, Patrick Odier, to the media in Geneva: “Market access is important for the Swiss financial sector. The Lombard Odier Group has anticipated the developments within the European regulatory setting and today, we are present in major countries. In this way, we can continue to serve our clients.”
 

Just one major takeover

Geneva became French in 1798. Differences in their understanding of how to do business led to a parting of the ways of Hentsch and his partner, Jean Gédéon Lombard. It proved to be prolonged separation and only in 2002 did the two banks remerge. Ironically, it took another crisis to do it: the collapse of Swissair. Bénédict Hentsch, member of the Swissair Board of Directors, withdrew from Bank Darier Hentsch, and the remaining partners joined Lombard Odier. This transaction has been the only major takeover in the history of Lombard Odier.

In 1800, Hentsch Bank became Napoleon’s primary bank and financed the Grand Army. Lombard, along with his brother-in-law, established Bank Lombard, Lullin et Cie, which focused on developing business with Geneva-based companies. However, Geneva continued to suffer from its isolation and numerous businesses closed down.

The bank’s own business struggled because Napoleon financed the war with tax increases rather than with loans. Hentsch was forced to relocate his registered office to Paris.

The reintroduction of the monarchy in France, and the independence of Geneva, marked a turn of fortune. The collaboration between Jean Eloi Lombard, son of Jean Gédéon, and the enterprising Charles Odier changed the business model. Lombard Odier became a merchant bank and enabled the financing of canals and railway lines in France.

Sunday Lombard

For Lombard Odier, progress is never an end in itself.For example, Alexandre Lombard (a partner until 1861) supported the introduction of one work-free day per week, earning him the nickname, “Sunday Lombard”.
 

Under his management, the bank became so well known that Jules Verne’s 1850 novel “From the earth to the moon” names it as a member of the imaginary banking syndicate, which issued bonds to finance the space expedition. Of the 22 institutions that spanned the globe from Baltimore to Buenos Aires and Lisbon to Constantinople, only two remain today: Lombard Odier and Rothschild.

The rare banks who have been able to celebrate a 222nd anniversary have mastered numerous crises. Lombard Odier puts their number at 40. The bank survived because it has a pragmatic approach and ample capital. When the French branch recorded high losses between 1857 and 1889 and filed for bankruptcy, the Swiss branch responded by introducing more checks and balances between the companies.

Yet, the success of Lombard Odier is not measured by assets under management or the wealth of its owners. There are many businesses, including banks, which achieved more within a shorter space of time. Its success lies in the fact that the bank is still stands after 200 years, with a focus on serving its clients. Patrick Odier tells the tale of how the bank’s oldest client relationship dates back to the year 1801.
 

Banking on the US early on

The bank owes a considerable debt to the first Odier of the dynasty, Charles Odier, a partner from 1830 to 1870. A technology enthusiast, he knew from his experience as a cotton trader in Le Havre that the American exporters had an edge over Indian exporters thanks to their hybrid vessels (featuring sails and steam paddles). He inspired Alexandre Lombard, who also became a big fan of America. They invested in canals, mines, railways. At the end of the 19th century, Lombard Odier was the most important promoter of US debt certificates invested in Europe. The US market was by no means crisis-free. Nevertheless, the bank was able to manage the risks, even during the 1930s when banks, worldwide, filed for bankruptcy. Its US strategy proved extremely successful when the values of German, Austrian, Russian, Turkish and French securities plummeted during the First World War.

The solution? Wealth management

Most stock markets closed down during the Second World War. The securities business and foreign currency trading ground to a halt. The bank needed a new business model. Therefore, Lombard Odier dedicated itself to advising private clients. When the European stock markets reopened after the war, Lombard Odier marketed securities across the Atlantic. In 1979, it was the first foreign bank with a licence to trade on the New York Stock Exchange. Pension provisioning was expanded in Switzerland and throughout Europe. Thanks to its experience with its own pension fund and long-standing connections with institutional investors in the US, Lombard Odier sniffed out a competitive edge: The bank established its Asset Management division in 1970, with London as the main centre. Lombard Odier was one of the first banks in Switzerland to install a mainframe to manage client data in 1957. Technology for Lombard Odier was never just a necessary evil. The bank received excellent feedback from relationship managers and clients for its technology and the quality of their (custodian) account statements. By contrast, other market participants were caught unaware by the boom in trading volumes.

In 2001, Lombard Odier made its IT available to third parties for the first time. This gradually led to the creation of a business unit, which now serves around 12 domestic and foreign banks. The Geneva-based private bank has thus advanced into third place among Switzerland’s bank IT providers. This shows that its entrepreneurial spirit has survived throughout the generations.

Annika Falkengren’s appointment as Senior Partner and CFO of Lombard Odier in 2017was  met with considerable surprise. The Swede had worked for the major listed Nordic bank SEB for 30 years, and had spent 12 years as CEO. Falkengren is only the fourth female partner in the history of Lombard Odier – and the first non-Swiss. Times have changed since Francine Odier became the first female partner at Lombard Odier between 1937 and 1947. Francine Odier became a partner because Swiss law requires partnerships to have someone bearing the titular name with unlimited liability as a partner. Francine was a (non-managing) partner until her son was able to take up his post. As it was, women played a special role at the bank during the Second World War: 38 of 75 employees were in active service, and so the 29 women employed there, had to manage the business. The first woman senior partner was Anne-Marie de Weck, who retired in 2016.

“A partnership is a living structure,” says current Senior Partner Patrick Odier. Of the 106 partners who have directed the bank’s fortunes, most come from the same ten or so Genevan families. But family members are not automatically entitled to partnership positions and time and time again, outsiders have been drawn in to boost the ranks of partners.

It is important for Lombard Odier to have a system for accepting talented bankers who have yet to make their fortune when they start out. A kind of advance system is then used among the partners. As Patrick Odier puts it, “You don’t need to buy your way into a partnership but you have to ‘earn your way out’”. Those who leave the bank take all their capital with them. Only active partners have a stake in the Bank. At the moment, there are seven of them.

In 2014, Lombard Odier abandoned the legal form of a partnership with partners having unlimited liability in favour of a corporate partnership. This step was prompted primarily by the need to gain regulatory acceptance outside Switzerland. The participation model, however, remains essentially unchanged. It is based on the combination of partners having different and complementary skills. There are no definitive assignments of authority. Every single partner needs to approve a decision before it is implemented. The partners as owners manage the partnership themselves and personally serve clients.