The private bankers: a unique alternative in the banking landscape

Press point of the SPBA – January 12, 2012

Nicolas Pictet, Partner, Pictet & Cie

Chairman of the Swiss Private Bankers Association

This year our traditional New Year press conference is being held in what is perhaps the most difficult context we have experienced for decades.

This difficulty is rooted in a number of causes:

1. firstly, there is the economy: this will be the subject of Grégoire Bordier's presentation. The debt crisis, ageing population and euro crisis are its components;

• then there is regulation: Christoph Gloor will expand on this in a minute. He will endeavour to show us how we should react and where we should be vigilant to ensure Switzerland remains competitive;

• finally, a structural cause: this is what I have chosen to talk to you about for the next few minutes, as well as about some basic trends.

However, to start with, I would like to comment on a topical subject: the incrimination of several banks, including a member of our Association, in the USA. There are several things I would like to highlight :

•    the first is that it is not my job to pass comment on any establishment in particular. It is the job of the banks whose employees are involved to speak publicly about the accusations. For the rest, the presumption of innocence remains a basic principle;

•    the second is that I thank the Federal Council and Secretary of State Ambühl in particular, for their efforts in negotiating a solution. However, I do not wish to publicly voice an opinion on the framework of these negotiations, as we are not privy to their content;

•    the third is that the Swiss banks have realized that it is not enough to comply with Swiss law; foreign legislation must also be respected in certain fields and certain circumstances. This is why our association's banks and members are issued with cross-border manuals which stipulate the rules to be followed

One further remark. If financial intermediaries have to respect the legislation in countries where they carry out their business, caution must be exercised in respect of the growing tendency of certain countries to apply their national laws extraterritorially. This extraterritorial application is an intolerable threat for a small export country like Switzerland.

We are confronted with structural upheavals. These are threefold:

• increasing difficulty to access markets and an increase in financial protectionism through ever stricter rules for the protection of investors and tax measures like FATCA;

• a rise in infrastructure costs due to the burden of regulations;

• changes in household saving patterns due to an ageing population, particularly in Europe.

These structural changes heavily penalize asset management at a time when banks are under fire.

It should be said frankly: in the last decade many financial institutions lost sight of the need to provide their clients with added value. Unfortunately, part of the financial world was polluted by proprietary trading which offers no service to the client and chases money for money's sake. At the same time, salaries in investment banks – particularly in the USA - rocketed and contributed to the public's growing incomprehension.

The time has come to acknowledge this and get back on track. In my opinion, in order to correct this, a clearer distinction needs to be made between investment banking and retail business and asset management.

Switzerland reacted quickly with its "Too big to fail" law. Nevertheless, I feel it is important to envisage the next move.

However, there are at least two reasons why this is not easy to do: some areas of investment banks are generally useful to the economy and a complete separation will require capital which, in these difficult times, will not be easy to acquire. For this reason, I would prefer to see the banks take these steps on their own before finding themselves forced to do so by the legislator or supervisory authority.

I would also like to stress the utility of a highly developed financial centre in serving a country's economic activity. The separation that is too often made between finance and the so-called "real economy" fails to recognize the fact that companies cannot prosper without access to credit with the best possible conditions and to all the tools currently available for risk protection.

We see it around us today.

And finally: for pity's sake, the profession as a whole provides its clients with a service and should not be penalized for the waywardness of a few. And let us stop making life miserable for the clients who are the first to suffer from over-regulation, even if some of the rules are introduced under the pretext of protecting them.

It is wrong to make the financial sector a scapegoat for all the ills from which we are suffering.

And, I would like to set the records straight:

• Firstly, the financial world is not solely responsible for the debt crisis in which we find ourselves. Many players were responsible for this crisis, including the citizens who let states reach an unsustainable level of debt.  What about one of our neighbours who has not had a balanced budget for nearly 40 years?

• The second is that the markets, often accused today of being dictatorial, are only a reflection of the general feeling. They are just trading places where the prices reflect the supply and demand.

Here, there is neither conspiracy nor dictatorship but a thermometer and breaking it when you have a temperature gets you nowhere.

How should we respond to this more difficult environment?

1.    We must fight to continue to be an export industry. It is above all necessary for Switzerland, not for its finance industry. Financial intermediaries can relocate, the country cannot.

To remain an export industry we need several things, cumulatively:

• market access

• good staff, made possible by the free movement of persons

• high innovation capacity

• impeccable service in both investment performance and attention to clients.

2.    We must ensure that the infrastructure costs, which have increased as a result of the regulatory tsunami that has hit us, remain internationally competitive. We must see to it that the regulations remain reasonable and 'digestible'. Even the specialists have difficulty in making sense of today's legislative jungle.

3.    We need to diversify our range and give more place to institutional asset management.

We do not need to reinvent the world in order to achieve these goals. We have and, in the near future, will have enough opportunities to react. These opportunities are namely: the revision of the Federal Act on Collective Investment Schemes; the implementation of measures that the Federal Council identified in its reply to the December 2009 Graber postulate and the signing of the agreements with Germany and Great Britain on the final taxation at source of their taxpayers holding Swiss bank accounts. Of course, these agreements still need to be ratified with the material content agreed upon on both sides.

My colleague, Christoph Gloor, will elaborate on the "Graber Report" and the strategic directions for Switzerland's financial market policy, as defined two years ago by the Federal Council. As we have seen, much still needs to be done regarding the domestic framework conditions in order to improve Switzerland's competitiveness.

That said, we, the Swiss private bankers, have confidence in the future. We have confidence in our key assets. Namely, expertise and quality of service. We have confidence in our business model, founded on unlimited liability and specialization and focused on long-term added value for our clients.

We offer a unique alternative in today's banking landscape.

Our success in the past year reflects this once again.