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The changing face of banking - how sustainability and inclusion are reshaping the industry

The changing face of banking - how sustainability and inclusion are reshaping the industry

Interview published in NZZ, 22 January 2022

 

Mr. Odier, we are on the brink of the Raiffeisen trial, just after the forced resignation of the Chairman of the Credit Suisse Board of Directors. What do you make of such events?

It is unfortunate that there are such cases. But they are certainly not representative. Ultimately, it has to do with values and governance, not with the banking sector itself - or with the philosophy of the management.

 

After all, the public perception of all banks is: “Those banks again.” Does that annoy you?

Of course it does. But it applies to members of management in all industries, not just banks: you have to be and remain a role model in all circumstances. From time to time common sense disappears, which leads to great danger. But again: these are exceptions, they are not the rule as far as the quality of management in Switzerland is concerned.

 

But the pharmaceutical or insurance industries are at least as important in Switzerland and produce fewer scandals. Why are banks always in the spotlight?

There will always be, in all industries, bad examples. I don't think it has anything to do with the banking sector. The latter has adapted to the new and stricter regulations in the last two crises. But by definition, people are more interested in the negative examples than the positive ones: for example, what the banks have done to become more sustainable. This will have a very positive impact on the sector’s reputation. It's a return to the core business: protecting savings and lending so that the economy can develop.

 

In 2020, the banks received a wave of sympathy and gratitude because they, along with the Finance Department and the National Bank, got Covid-19 loans up and running so quickly.

The banks quickly organised themselves to be useful even in this time of crisis. The relationship with our federal authorities was good. Now the banks have to finance and support the change in business models in the face of climate change. The banks are also very interested in this: new business areas are opening up, and the banks are organising the capital for them. The potential to play a positive role again is greater today than ever before.

The banks are also very interested in this: new business areas are opening up, and the banks are organising the capital for them. The potential to play a positive role again is greater today than ever before

Does that really come across? Are you getting positive feedback about the role of banks in the fight against climate change?

Yes. I'm sure you followed COP-26 in Glasgow, and what we did in Switzerland with our unique "Building Bridges" conference. Commitments by individual banks, as well as the sector as a whole, can have a huge impact. It is becoming increasingly difficult for players in the financial sector not to move in this direction. Banks act out of a fiduciary responsibility; it cannot be about a clear conscience alone. The best investment opportunities, but also the greatest risks, present themselves in the area of sustainability and transition.

 

Policy frameworks are needed to replace oil-fired heating systems, and to make air or car travel more efficient. Isn't the role of the financial sector in the fight against climate change overestimated?

No, I don't think so. It will take CHF 150 trillion in investments to reach net zero. Public sector financing is nowhere near enough to achieve this. That's why banks are very important as intermediaries for capital. They convince the owners of capital that this is where the best opportunities are.

Is there a key moment that triggered a change in thinking and an interest in sustainability issues for you personally?

In 1997, we asked ourselves whether our analysts should collect more than just quantitative data on those companies we wanted to recommend to clients, and realised that institutional investors were asking themselves the same questions. As a result, we decided to underpin all our investment decisions with both quantitative and qualitative conclusions (such as values and impact).

 

Sustainability aside, are Swiss banking leaders doing enough to engage politically as citizens - for example, in terms of our relationship with Europe? There is a lack of pronounced voices from the business community.

Of course, much more should be done - and it irritates me that it's not being done. But it's the same everywhere: someone needs to start. There is a lack of courage.

The best investment opportunities, but also the greatest risks, present themselves in the area of sustainability and transition

Everyone shifts the responsibility to someone else.

Negotiations between the EU Commission and our Federal Council began in 2014. Seven years later, Switzerland made the grave decision to break off the process. No solution, no plan B: this is unacceptable. We absolutely need new plans to secure our relationship with Europe. Who bears this responsibility? First, the Federal Council; second, Parliament; and most importantly, the people, which includes the business community.

 

There is also no pressure because there are no figureheads from the business community to stand up and say, “This is important.” Thirty years ago, Robert Studer, the head of the banking company, ran against Christoph Blocher. Now we have Rolf Dörig, who is signalling, “It’s not that important.”

I'm not as vocal as the people you mentioned, but I say all the more convincingly: it's essential that we have this debate before the next election. According to Federal Councillor Ignazio Cassis, Europe is one of the four priorities of the Federal Council. I expect action. We should have had contact at the political level already in Davos - what happens now, I don't know. Part of the population is very dissatisfied with the current situation. Not that this will have a strong negative impact in the short term. I hear this argument every day; but in the long term, this non-decision has dramatic consequences. This despondency - to say there is no majority solution at the moment - is incomprehensible.

 

Would you also make it louder and more visible, as Mr. Studer did 30 years ago? I, Patrick Odier, am standing up.

Yes, but who am I to say that? I speak out as a convinced citizen that we need to find a good solution concerning Europe. We cannot afford to wait another two years because of the next elections.

 

You are not nobody, you are Patrick Odier.

But I am not a politician, not a Federal Councillor. I call on those in positions of responsibility to take on this responsibility. But I don't see any of it.

 

Do you sometimes feel alone with this position? If the business community stood united with associations and prominent figures, there would be more of an echo. The pressure would increase.

That's why I say it loud and clear. I know the hurdle is probably greater in German-speaking Switzerland; there are more negative voices concerning the negotiated solutions than in French-speaking Switzerland or Ticino. Maybe these were not the right ones, ok - but then tell me where we find them. Don't tell me that we should wait another two years, that we have a trade agreement that is sufficient. It isn't. We are dependent on Europe, and the same is true in reverse. Think, for example, of our extraordinary research base. There are now voices from Germany calling for us to do more than just wait.

 

The German industry association is raising its voice the loudest - not Economiesuisse or Swissmem.

It is strange that we have to hear this from the outside - but it is very useful. Once again, if we are still doing well today, it is because of previous good decisions. But nothing has happened in European policy in the last seven years.

 

Neither politicians nor the public reacted in a big way last year to the billions in losses at Credit Suisse. Is that an indication that the banks have alienated themselves from the public?

No. First of all, it was precisely during the pandemic that many small and medium-sized enterprises experienced the positive difference that banks can make. These SMEs are backed by people, and so is the population. Secondly, our Swiss economy performed well during the financial crisis and the pandemic. This is due to the good working relationship between the financial centre and the real economy. Everyone understands that there are so many jobs in the country thanks to the balance between financing and production.

 

So you don't see any distance?

I agree on one point: it is becoming increasingly difficult to explain exactly what banks do. This is also due to the increasing mechanisation of the financial world. And then there are the failures you mention. These also exist in other industries, but in the case of banks, a lot of money is immediately at stake. Money is a very sensitive issue. Especially when top management pays itself well and at the same time doesn't behave in an exemplary manner. But these are exceptions.

 

You can also look at it this way: people have become accustomed to banks regularly making financial debacles or paying hundreds of millions in fines. It doesn't upset them anymore.

You're right, there are still too many debacles, year after year. But it is important to realise that today's banks have rules and systems in place that guarantee sound work.

 

In the Credit Suisse report on the case of the hedge fund Archegos, one reads that warnings from colleagues or from systems were deliberately ignored. Does the prospect of big money attract people who are not "good bankers" at heart?

As a former president of the Bankers Association, I can assure you: the banks are doing everything and investing a lot of money to ensure that such cases remain exceptions. The situation is very different from what it used to be. This makes it difficult from time to time to penetrate new markets, for example because the conditions in terms of customer documentation are tough. Is that a bad thing? No, it's actually good. It prevents us from making quick and superficial decisions and taking the wrong risks.

 

Isn't it simply that the prospect of making a lot of money appeals mostly to bad bankers?

I don't think so. Rather, it depends on the business model. At Lombard Odier, for example, we are owners and entrepreneurs. We have to invest to be profitable. For us to be that consistently, we have to avoid bad risks. That's part of our responsibility. If we do all that, it stands to reason that compensation should be somewhat higher than in other industries. We also have to behave in an exemplary manner when it comes to distributing the company's profits, in the sense of managing behavioural risks. Everything goes together.

 

So high wages are not a problem?

If a banker earns well as a successful entrepreneur, that's fine. Provided the business is run for the benefit of the clientele, is free of conflicts of interest and is managed with values such as integrity, quality and excellence. As I said, it is important that our bank is profitable, in particular so that we can make investments for the benefit of our clients. For example, investments in building user-friendly banking technology or in investment expertise in sustainability.

…we have to put values at the heart of the company. I can't just talk about customer orientation, I have to live it. That's why I meet customers every day, just like all the other Managing Partners. We know what customers want and what it means to serve them

You are an owner and entrepreneur, but most of your employees are not. How do you get them to act in your interest?

First, we have to put values at the heart of the company. I can't just talk about customer orientation, I have to live it. That's why I meet customers every day, just like all the other Managing Partners. We know what customers want and what it means to serve them. Second, integrity and transparency: we say what we do and we do what we say. Third, as a company, we have to be exciting and interesting for our employees. They need to feel part of a project. With our sustainability philosophy, we have done just that.

 

You have thus given Lombard Odier a purpose.

Yes. We have never attracted as much interesting and quality talent as we do now. We have 25 researchers who are purely scientific. They are solely dedicated to examining what sustainability means for individual industries. What conclusions can a bank draw from this and how can they implement them professionally? Lombard Odier has been certified by B Lab as a sustainable company. Again, we do what we say we will do. This is a fantastic source of motivation for our employees.

There have never been as many interesting opportunities as there are today…As bankers today, we think about sustainability, climate change, biodiversity, social inclusion, the circular economy

You started in banking almost 45 years ago. Is the world of banking better or worse today than it was then?

I very much regret that I am no longer a young banker. During my career, there have never been as many interesting opportunities as there are today. The opportunities that new technologies are opening up for us are extraordinary. To be able to help shape this transformation in the banking world, to create value from it for the economy and for society! As bankers today, we think about sustainability, climate change, biodiversity, social inclusion, the circular economy. In the past, our job was essentially purely financial. University graduates went to the bank because the pay was good. Today, they come to us because the work is interesting and has a significant impact.

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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