The impact of Covid-19 on private banks: an interview with Patrick Odier
Patrick Odier, Senior Managing Partner

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The impact of Covid-19 on private banks: an interview with Patrick Odier

Interview published in the Neue Zürcher Zeitung on January 13th 2021


At the private banks, you don't hear much about Corona. Where do you feel the pandemic?

Everyone is aware again that working for the client must be at the core of what we do. We have always done it that way: we are not a product bank, but a service bank. The return to the core business became necessary because customers could no longer simply be visited. Proximity, trust, the right values and investment strategies are needed. In addition, banks have learned to use new technologies and communication tools, to better manage risks. This has added value for customers during this crisis. And last but not least, the demand for sustainable strategies has accelerated sharply.


Trust is at the core of your business. That's built in face-to-face meetings. How difficult was it to maintain this relationship of trust during the pandemic?

Trust is the result of a long-term relationship. It can be lost very quickly when mistakes happen. That's why customers must always be at the center, and a bank must focus on its core business. Customers want to understand what is behind the recommendations, they want to be convinced by a fundamental and professional analysis of the facts. If this is done right, trust can be built even in a pandemic, even more so if the recommendation leads to positive results.


And your bank got it right?

We attracted CHF 6 billion in new assets in the first six months of 2020. It's a paradox: The distance to customers has increased due to the pandemic, but the relationship has become deeper. Our customers discuss more with us than before; they want to know from us: What arguments are on the table and how do we as experts interpret these facts? What alternatives are there, what risks are involved?

Banks have learned to use new technologies and communication tools, to better manage risks. This has added value for customers during this crisis

Lombard Odier is expanding its Swiss business from Zurich, as well as certain international activities, for example in Latin America. Is Lombard Odier still a Geneva bank or already a Zurich bank?

We are from Geneva, but we see ourselves as a Swiss bank, because there is no room for regionalism in the global wealth management business. Zurich has become very attractive in recent decades - I personally sometimes feel more at home on the Limmat than in Geneva (laughs), because I sense a strong dynamic here. In addition, many talented people are drawn to Zurich, and the city is attractive for existing and new generations of customers. Investors also like to come to Zurich.

 

Is the impression correct that many Geneva private banks are drawn from Geneva to Zurich?

Not only to Zurich, but generally out into the world. Lombard Odier has become more international, and we have grown more outside Switzerland than in our home market. However, we are clearly committed to Switzerland and employ over two-thirds of our staff in Switzerland.


Isn't there a danger that the Geneva banking center will not find enough talent if the most important clusters are formed in Zurich?

Topics such as impact investing or sustainable investments are gaining a lot of importance in the Geneva financial center, partly because non-governmental organizations, international organizations and the financial world meet there. This is creating a lot of momentum. Ten years ago, it was hedge funds that rapidly gained importance in Geneva. We should be talking about the Swiss financial center, not Geneva, Basel or Zurich.


After the loss of banking secrecy in the offshore business, pretty much all the big private banks expanded their Swiss business. Is the Swiss market big enough for all these ambitions?

Lombard Odier's private clients come one-third from Switzerland, one-third from Europe, and one-third from the rest of the world. For a large private bank like ours, Switzerland is an important market, but we need global growth. Small institutions, on the other hand, can still build a long-term business model in the Swiss market if they anticipate the important trends correctly. They have to remain very competitive to succeed in Switzerland. But consolidation will continue.


Swiss banks are attracting new assets. But the rising volumes are offset by declining revenues and margins. Isn't that worrying?

This is a challenge that must be solved by entrepreneurial means. At Lombard Odier, we are adding value to our services, for example by expanding tax-efficient asset management. In this way, we defend margins better than if we only offer standard services and index-based products. In addition, cost-efficient digital processes and robust risk management are needed. To implement all this, we need to invest. We can do that because we have been continuously profitable. We have developed our own technology platform over the past 40 years, we master the entire value chain in that area. A quarter of our employees are employed in the technology area. Fortunately, we have the necessary skills and capital resources in-house to do it ourselves. That's why other banks are using our platform, which may not have those resources.


Lombard Odier has been focusing on sustainability for some time. Today, green bonds and sustainable finance are ubiquitous. How can you still stand out?

As you know, it's not a new field for us. We have been able to build up a lot of expertise in this area over the last 30 years. For us, sustainable investing is an investment philosophy and part of our DNA, not a product strategy. Over 80 percent of the assets we manage are invested sustainably, and we are working toward getting to 100 percent over time. As fiduciaries, we are responsible for helping clients achieve better long-term performance and take less risk, thanks to our analysis. This is not theory, the results already show that. We have invested heavily in teams that analyze global trends, such as how climate change will affect 160 sectors of the economy. Our methodology is recognized by the TFCD [Task Force on Climate-related Financial Disclosures], for example.

For us, sustainable investing is an investment philosophy and part of our DNA, not a product strategy

Nevertheless, there is the "lemon" problem with sustainable investments: the customer is overcharged, which is why poor quality prevails in the market - i.e. cheap greenwashing. How can customers learn?

Customers need to know what the right criteria and benchmarks are. At Lombard Odier, we have developed a science-based framework that allows us to show the temperature effect of a portfolio in the context of the Paris climate agreement. This is easy for clients to understand.

In Switzerland, we are ideally set up with the relevant experts and competencies to define the right methodologies for sustainable investing and the relevant standards - the Swiss financial center is considered a pioneer in this area. We need to ensure that we are all speaking the same language - policy makers, academia and the financial industry. This will also enable us to influence the design of international standards.


In Switzerland, there is a strong tendency to solve sustainability issues through politics. How do you assess this development?

We need to work together with the public sector on these issues, but sustainability should be bipartisan. As economic players, we have to ask ourselves: How can we ourselves come up with better proposals and stimulate social discourse? For example, I am in active exchange with Economiesuisse. The corporate responsibility initiative has shown how important it is to proactively contribute proposals at an early stage instead of just saying no. In many places in the economy, we have to learn again how to get involved constructively.


What is lacking?

A long-term vision. It's not just a matter of defending traditional framework conditions, but also of understanding what is changing in society. Switzerland must not lose its innovative edge, otherwise it will lose its attractiveness for new talent and as a business location.


You were president of the Bankers Association. Raiffeisen recently left this industry association. Does it still speak with one voice for the industry?

The withdrawal of the Raiffeisen Group is to be regretted. I don't want to comment on it in detail, but I don't think the decision is in the country's interest. I respect Raiffeisen's decision, but as a country we need unity. There must be no contradiction between domestic and foreign business, because Switzerland is a combination of both. The Bankers Association must remain the voice of the industry for politicians and authorities. Otherwise, we will have a cacophony in Bern, and that will weaken our sector.


These dividing forces are not new?

It needs the will to collaborate – both sides need to ask what they could do better.


Why are money laundering and corruption cases still coming to light in cross-border business after the end of banking secrecy? What went wrong?

There will probably always be individual cases, on the part of the institutions and the clientele. But the banks have learned their lesson. Switzerland has introduced strict measures against tax evasion and corruption, and a great deal of effort is being made to protect the integrity of the financial center. But it is unfortunately impossible to avoid all cases. This fight has nothing to do with Switzerland, but is global in nature. In this area, Switzerland could also help to improve global standards. Example: How should one deal with politically exposed persons? The vast majority of them are politically active honestly and out of conviction - you have to be able to analyze it in a differentiated way.

We need to move to a more sustainable, regenerative alternative - a future based on a circular, efficient, inclusive and clean model

And this makes them potential clients?

Yes – but banks must systematically ask questions about the source of the funds. The banks have learned how to do this.


Do banks take strategic risks that should not be taken?

No serious bank voluntarily takes unpredictable risks. The costs and the possible loss of reputation are too high. It is therefore important to continuously improve cooperation with the authorities. Where else are there sources of information that can be tapped to better manage these risks? The banks employ a large number of specialists who work hard to gather and evaluate information about customers. The authorities are doing the same.


But the banks' suspicious activity reports seem to pile up at the money laundering office.

Yes, a solution has to be found. But we are working on it. And once again, too many SARs are not a purely Swiss problem.


What do you wish for the post-Covid era?

In the aftermath of the Covid crisis, we have a responsibility to find better solutions for our future. The problem with broken supply chains, for example, raises the question of what we need to do to prepare for the next crisis. It also requires a fundamental redesign of our economic model. We need to move to a more sustainable, regenerative alternative - a future based on a circular, lean, inclusive and clean model. In this regard, sustainable investments are considered our core conviction and we see this as the biggest driver of future returns for our client.

Important information

This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

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