history.

seven innovations.

Creation of Lombard Odier: deliberate choice or necessity?

chapter 1.

Since the early Middle Ages, Geneva takes advantage of its geographical location, ideally suited for trading across the Alps. Its big commercial fairs attracts traders and bankers from all over Europe. It is not surprising that the famous Medici Bank has a branch in Geneva, besides offices in Florence and Avignon. Surrounded by Savoy, France, Austria and Switzerland, the city skillfully plays to its competitive advantages and wins international fame by being the host of the best known commercial trade fair together with the cities of Lyons and Bruges.

When Geneva becomes Protestant, in 1536, it attracts, thanks to the founding principles of John Calvin, a stream of people fleeing religious persecution.  Amongst them Italians (including the Lombard family), Dutch and English. These are traders and skilled craftsmen who quickly assimilate in Geneva. After the revocation of the Edict of Nantes  in 1685, another wave of refugees passes through our town and four thousand French Huguenots settle in Geneva (amongst them the Odier family of Valence).

At the turn of the 18th century, these Huguenot families become Geneva’s first prominent bankers. By that time, Louis XIV’s lust for glory has ruined France’s finances. In an irony of history, the Sun King has to appeal to the Huguenots, the very same people he prosecuted, to finance his wars and take care of the remittances to his armies abroad. This gives rise to the wealthy banker families Mallet, Lullin and Gallatin. Their legacy is still visible in the magnificent “Hotels Particuliers”  they built, re-shaping the city of Geneva.  However, less than hundred years later, the 1789 revolution marks an abrupt end of this flourishing period. With their wealth loaned to the French monarchy, these families lose all and face ruin. The bloody course of the French Revolution also severely damages Geneva’s export market for silk, printed cotton and watches. Geneva’s affluent customers are either killed, in prison or in exile.

During these troubled years, with Geneva’s traditional bankers ruined and the town’s export business suffering, Henri Hentsch and Jean Gédéon Lombard establish our bank. Created in 1796 as “Hentsch & Cie”, it becomes two years later “Henri Hentsch & Lombard”. Was it out of necessity? Or did they spot a business opportunity?

Choice or necessity? We will never know.  What we know is that our founders share an innate sense of trade, the ability to manage money and a deep faith in the fundamental values of hard work, avid curiosity and openness to innovation. By establishing a stand-alone Bank which makes its income exclusively from commission, they create the first of many innovations in our long history.

 

Lombard Odier under Napoleon: staying the course.

chapter 2.

On 15 April 1798, Geneva signs the Traité de Reunion, with France. Geneva becomes the Prefecture of the Département Mont-Blanc and is quickly integrated into the French Republic. Jean-Gédéon Lombard, one of our founding fathers, is amongst the eleven signatories to the treaty. What motivates him to sign?

Despite some protests, the annexation is done peacefully. A few leading families retire to the countryside but most support the French administration and many enlist into the Imperial Army. Jean Gédéon Lombard negotiates hard for his City and is not only able to put the former republic’s wealth, estimated at 4.4 million Guilders, into the independent “Société Économique” but also exempts the town’s young men from military duty. Everybody expects that the opening of the large French market will revitalise Geneva’s economy.

Being part of France changes the bank’s business model. Henri Hentsch, the former textile trader, is intrigued by the new business opportunities with the French government, while Jean Gédéon Lombard, remains cautious. The association between these two prominent figures in our history takes an end less than two years after the treaty signing in April 1798. Hentsch wants to work with the bank’s balance sheet whereas Lombard wishes to stay focused on commission income.

Going forward, the now independent Banque Hentsch becomes an agent to Bonaparte, handles the Grand Army’s cash and remittances and ventures into underwriting, distribution and holding of French Government Securities.  Jean-Gédéon Lombard teams up with his brother in law, Jean Jacques Lullin and creates Lombard, Lullin et Cie. The bank focuses on discounting and changing bills of trade for travellers and Geneva’s local businesses.

Contrary to expectations, the union with France does not bring the hoped for economic recovery. The City’s manufacturers suffer from lack of raw materials and the textile industry faces strong competition from Mulhouse and Lyon . The export oriented watch industry is strangled by the continental blockage and loses its lucrative markets in Russia, England and Asia. Instead of recovering, Geneva’s business is shrinking. Many shops have to close. The City’s citizens lose their jobs.

One hundred years earlier, Geneva’s bankers become wealthy with the financing of Louis XIV’s wars and extravagant spending (Versailles). No such opportunity exists under Napoléon. Never willing to pledge his tax revenue to government bond holders as the English do so successfully through the Bank of England, Napoléon is forced to finance his wars with taxes. There is little financial activity for Geneva. Consequently, Hentsch moves his operations to Paris, where he incorporates a new bank under the name of Hentsch, Blanc et Cie. in 1812. With the restoration of the French Monarchy after 1815, Hentsch, Blanc et. Cie. becomes one of the big names in the Haute Banque system.

Banking is equally tough for “Lombard, Lullin & Cie. The Corsange bankruptcy in Lyon  in 1801 ruins Jean Jacques Lullin and costs  Jean Gédéon Lombard the huge amount of 30,000 Livres. But the bank stays in business albeit with much reduced levels of profitability.

Despite years of hardship and a challenging business environment, our founding fathers do not try to speculate their way out of demanding times but focus on building sustainable businesses. The foundation is laid for the prosperous expansion after 1815, which makes Geneva a financial hub of paramount importance, connecting the City to Paris and overseas.

French Investment Bank (1815-1914)

chapter 3.

While the Peace Treaty of Vienna in 1815 redraws the boundaries of Europe, Geneva recovers slowly from its "French period". Politically, the City joins the Swiss Confederation and has its neutrality recognised. Economically, the 20 years following Napoleon’s wars witness few business opportunities. The cotton & silk industries face severe competition from England and slowly fade away. The watch making industry however does better. Successfully combining watches and jewelry, it reconquers the export markets lost during Napoleonic times.

The restoration of the Bourbon King Louis XVIII restores peace in France. Importantly, many of Napoleon’s far reaching reforms (Departmental structure, tax system, Écoles Superieures, Banque de France & Code Civil) are maintained and ensure political stability. With the helping hand of the king, the economy takes off.

The Hentsch and Odier families which established footholds in Paris during the Empire start financing the first canals and railway lines linking coal fields and iron mines in the north to the traditional industrial centres in Paris and Lyon . Both, the Hentsch and the Odiers are part of a new generation of Merchant Bankers, who form the "Haute Banque" in Paris. The families not only assume leading positions in French society, they are also directors at the Banque de France and amongst the financial pioneers of their time. They create with the Credit Mobilier banks a new type of universalbank  with the specific purpose of financing industrial developments. Members of the Hentsch family are co-founders of BNP Parisbas, Banque Indosuez, Société Générale and several savings banks (Caisse d’Epargne).

While the French family branch of the Odier and Hentsch prosper in Paris, the association of Jean Eloi Lombard with Charles Odier in 1830 also transforms the traditional business model of our bank in Geneva. Charles Odier brings not only a contribution of 80'000 Livres but also his priceless French connections and his merchant banking expertise. This allows Lombard Odier to actively participate in financing the industrial development of France and the Romandie.

In a few years, Lombard Odier is established as a most enterprising merchant bank with a reputation which goes well beyond Switzerland. In the 1850/60s, our bank helps to create the Genevan stock exchange, the insurance company La Genevoise and the establishment of other financial institutions. Due to its expertise, it becomes a leading member of a Genevan syndicate distributing foreign shares and bonds. By the end of the 19th century, it will be the lead underwriter of American securities in Switzerland.
Yet at all times, Lombard Odier et Cie. remains conservative, well capitalised and with strong risk controls. Whilst in 1857 and in 1889, the Paris branches of the Odier and Hentsch families suffer severe losses and see their fortunes reversed, our bank remains solid and solvent due to the healthy system of checks and balances between the partners.

Once more, our founding fathers are able to adapt to a new economic environment and rethink their business model. The result is a dynamic Geneva merchant bank which contributes substantially to the development of our civil society. That it is done without assuming undue risk is even more remarkable.

A Trans-Atlantic Merchant Bank: discovering the beauty of diversified returns

chapter 4.

From 1790 to 1915, the United States records the most impressive Emerging Market story ever. In 125 years, an agrarian society with only four million people becomes not only an industrial giant with 100 million citizens and the world’s largest GDP but also a pioneer in engineering, telecommunication, steel and oil production and electric power generation.

This tremendous growth is financed by a young and vibrant capital market. Not being hampered by liability laws, joint stock companies and exchanges are established in every state. The New York Stock Exchange goes back to 1792. America represents a highly attractive investment opportunity in the 19th century and allows European investors to diversify their portfolio away from European sovereign debt and stocks in a few canals, railroads and mines. It is not surprising that our Bank jumps on the possibilities that arises in America between its Independence and the First World War.
With the arrival of Charles Odier in 1830, our Bank becomes a classical merchant bank with a Francophile touch.  Yet, it is also Charles Odier who encourages Alexandre Lombard’s, one of his partners, interest in the US market and incites  him to use that knowledge to advise clients.  Whilst running his successful cotton business in Le Havre, Charles Odier has met at the age of 22 the Iselin family, which was to become one of North America’s pre-eminent Merchant Bankers. We know little about the precise relationship between Lombard Odier and Bank “Iselin & Co” in New York except that there is a permanent exchange of staff on partner level. Bank Iselin was also Lombard Odier’s correspondent bank.

Influenced by Alexander de Tocqueville's writings, Alexandre Lombard, who never has the chance to visit the United States, publishes several brilliant books on the financial situation of North America. Another reason for Alexandre Lombard’s affection for America is the spirituality affinity he sees reflected in the US culture. Puritans, Presbyterians and other Protestants share his own work ethic. When he passes away, half of his personal investments are in US stocks.

At the end of the 19th century, Lombard Odier is the largest underwriter of US securities in Switzerland, well ahead of Swiss Bank Corporation in Basel or Credit Suisse in Zurich. As any emerging market, the lightly regulated US market sees its fair share of panics and crashes but Lombard Odier carefully risk-manages its positions and builds the business without suffering losses.
Most importantly, the move pays off generously for the bank’s clients when the value of their investments in German, Austrian, Russian, Turkish and French securities collapses with the First World War. Henry Odier pointedly writes in 1923: “If the Great War did not destroy 50% of all the Genevese portfolios, it can be said that a large portion of this good fortune should be attributed to Alexandre Lombard.”

Our “founding fathers” become one of the largest underwriters of US securities once they discover America as an attractive market and enable their clients to successfully diversify their portfolios. Once again, they are rethinking their business model and build a valuable, research-led and reliable investment bridge between Europe and America.

Protecting wealth in times of war, inflation and economic misery.

chapter 5.

The years from 1914 to 1945 are challenging times for our bank. What starts with the outbreak of the First World War only ends with the defeat of Germany and Japan in 1945. The world wars and the Great Depression close the chapter of fast global integration and economic growth during the 19th century. They also result in massive losses for investors.

When the First World War ends, the Austrian, Russian and Ottoman Empires collapse, never repaying their debt. A few years later, Germany descends into hyperinflation, making any security held in Reichsmark worthless. Even the currency of victorious France depreciates by more than 80%. Only investments in Pound Sterling, US Dollars and Swiss Francs maintain their value.

The Great Depression in the 1930 has an equally disastrous impact. From 1929 to 1932, the American Dow Jones Index drops by 85%. English shares are not far behind. Trade barriers are erected between all major countries and the tensions in the Far East explode into open conflict between Japan and China in 1937. The opening shot of the Second World War is fired soon thereafter.
The war from 1939 – 1945 is probably the most total war ever fought in history. The participating nations mobilise all national resources. Entire economies are dedicated to the war effort. Whilst America’s industry is sheltered by the sheer distance from the war theatres, the economies of the Axis Powers Germany, Italy and Japan are obliterated by air campaigns. Billions of investments are destroyed.

The First World War affects our bank from the very first day. Our lead partners and many male employees are mobilised for border protection. The bank is run by retired partners and female staff. Given the complete closure of the Swiss borders, business is slow. All governments establish restrictive rules for securities transactions, managing a portfolio of foreign securities is challenging and contacting foreign clients almost impossible. The bank is hardly profitable.
The years between the wars are not of much relief. Whilst many Genevan families are able to preserve their wealth due to their American investments, the economic environment remains harsh. With the boom in the USA from 1925 to 1928, optimism returns for a few years. But the crash of 1929 extinguishes this glimmer of hope.

Despite the adversity, our partners believe in a prosperous future. They merge with smaller banks to increase the number of clients and in 1923 build  a new head office at Corraterie No 11 where it still stands today. Ten years later, when the bank faces financial difficulties, the partners convert it into an unlimited partnership. During the same years, in 1926, Lombard Odier is one of the first banks in Switzerland to offer a pension plan to its employees. As an unwritten policy during the Great Depression, nobody is made redundant.

The years of the Second World War resemble the experience from 1914to 1918. With financial business in Europe blocked by Nazi Germany and Swiss assets in America frozen, there is little to do. The bank barely breaks even. As in the First World War, retirees and women keep the bank open.

During these challenging thirty years, our partners develop a new business model – they advise clients in the management of their private portfolio and manage portfolios of clients they cannot  get in touch with. When everybody wonders how to stem the horrendous investment losses, the partners make their knowhow available for our clients. Was it necessity or an innovation? Probably both – but definitely the origins of the private banking business at Lombard Odier, the most important business line today.

Building the safety net for citizens: Lombard Odier pioneers institutional investments

chapter 6.

No war has reshaped the world as fundamentally as the Second World War did. With Europe and Asia in ashes, America goes its own way and embarks on the “American Dream”. The United States become the world’s wealthiest nation. Large, affluent suburbs spring up; the interstate highway system is built; everybody can afford a car; children are sent to college; a wealthy, white middle class emerges.

Whilst America prospers, Russia and China disappear behind the Iron Curtain. With American aid,  Europe and Japan are rebuilt. The currency reforms in 1948/49 are the starting point. Within ten years, the economic miracle or “Wirtschaftswunder”  allows Japan and Germany to catch up. By 1957, the European Union is created. A year later, capital and currency controls are lifted.

America’s positive trade balance allows US citizens to both consume and save. Large amounts of money pour into pension plans, life insurance policies and mutual funds. These savings underpin the thriving US capital market, which also benefits from the reforms of the Great Depression. With the Bretton Woods conference in 1944, a new post-war financial order is established and substitutes the US Dollar for gold. America’s currency becomes the world currency. American capital dominates the investment world.

During the early post-war years, the US Dollar and Swiss Franc are the only two freely convertible currencies in the world. Our bank resumes its old strategy of selling North American securities. Consequently, in 1950, Lombard Odier sets up an office in Montreal. When European stocks become attractive investments again after 1958, the bank brings American equity research methods to Europe and introduces institutional US investors to these opportunities. Eventually, Lombard Odier creates Trans-Atlantic Securities, opens an office in London in 1973 and is the first foreign bank to acquire a seat at the New York Stock Exchange in 1979. Lombard Odier enters the world of institutional asset management.

Asset management opportunities also arise in Switzerland, when a ballot decides in 1971 to strengthen the existing old-age insurance system by complementing it with mandatory pension plans. With already considerable expertise in this domain from its own pension plan, established in 1926, Lombard Odier helps to draft and implement the new pension system.

In parallel, the partners expand the operations in London. Lombard Odier starts to issue thematic funds and introduces Asian investment opportunities to Europe. By 1996, Lombard Odier employs 100 staff in England and manages over CHF 10 billion in assets. Quite naturally, our bank has become a reliable and professional player in institutional asset management, spanning both sides of the Atlantic. A new business model is born and complements today the private wealth management as second  most important business division.

Moving towards a digital world - Lombard Odier's technology

chapter 7.

With millions of clients and brokerage transactions, Financial Services have always had a big need for data processing and data storage.
In the 1920s, the first mechanical accounting machines arrive in the back offices. It is no surprise that banks are eager and early adaptors of computers in the 1950s. Quite quickly, large mainframe computers take over cheque processing, interest and commission calculation, clearing and settlement of securities transactions and many more infrastructure processes.

Lombard Odier is an early innovator in technology. The first mainframe from IBM is installed in 1957 at 11 Rue de la Corraterie, to process the bank’s accounts. Less than 12 years later, it is replaced by the brand new IBM 360/30 which takes over the processing of securities transactions and performance calculation of client portfolios. Lombard Odier is one of the first banks in Switzerland to print monthly portfolio performance reports for our clients.

In step with the ever increasing capacity of microchips, Lombard Odier switches from mainframes to mini computers. In 1987, it buys the first VAX from Digital Equipment. The VAX gives the bank much more operational flexibility and later allows the development of an architecture which mirrors the bank’s legal structure. A few years later, the bank also replaces all terminals with personal computers. We move to a truly decentralised technology world.

Even more important is the bank’s decision to develop modern portfolio management systems to help clients manage their funds. The first rudimentary system is built on our mainframe computer in 1980 and is simply called “Gestion”. It is replaced 12 years later by G1 (“Gestion 1”) which allows electronic order entry and automates clearing and settlement of securities. In 2002, G2 is released giving us dynamically aggregated portfolios, daily, time-weighted performance measurements, historic and forward looking scenario analysis and beautiful graphical interfaces. The system is so admired by customers that the bank puts screens in all meeting rooms.

When Valiant, a private bank in Berne, asks in 2001 whether they can use Lombard Odier’s technology infrastructure instead of developing their own, the decision is easy. Valiant is set up as a non-consolidated subsidiary in our system and immediately has access to the same products and services as Lombard Odier itself. It takes less than six months to on-board Valiant. A new business model is born and today, Lombard Odier provides banking technology to 12 external banks.

In 2002 during its merger, the Private Bank Darier, Hentsch & Cie. also benefits from our revolutionary architecture.Rather than having to merge two different IT systems, client and transaction data from Darier, Hentsch et Cie. are simply migrated and integrated as a new subsidiary. The costly effort of having to integrate two systems is avoided and the new customers can immediately benefit from Lombard Odier’s sophisticated product range. Today, Lombard Odier focuses on mobility, making its systems available on tablets and smart phones. By 2017, our mobile solutions “G2 Mobile” and “MyLO” will be interactive and allow our clients to stay in touch anytime, anywhere.

since 1796.

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