Lombard Odier, along with other traditional Swiss private banks, is making a lot of its conservative business model in these tumultuous times.
During the heady days of the investment banking boom in 2006, Lombard Odier sold off its investment banking unit to rival Vontobel to focus on private banking and asset management. The bank has also recently made a statement it had no exposure to the alleged $50 billion fraud by Wall Street trader Bernard Madoff.
“Our conservative stance has been the pillar of the bank for the last two centuries and has helped us to weather storms such as the current crisis,” said Pasha Bakhtiar, managing director and head of its Middle East operations, in an interview with Private Banker International,
“We do not branch out into other areas of banking such as investment or corporate banking,” Bakhtiar added. “We did not leverage our balance sheet for excessive credit or get involved in subprime paper or Madoff.”
With €111 billion ($144 billion) under management, Lombard Odier is family-owned and each of its nine managing partners is a part-owner, part-manager who bears unlimited liability. This gives them direct financial responsibility of the institution’s well-being extending to their personal assets. This is the selling point for Lombard Odier in a market where most of the wealth is family-owned.
In the Middle East, Bakhtiar said: “We have a large percentage of businesses that are family-owned. The head of the family translates to the head of the business. The distinction between the wealthy individual and the business man is quite grey and usually it is one and the same here.”
“Our managing partners are very much involved in the business. They are in the region 5 to 10 times a year and take the time to meet with clients and prospects. This demonstrates the level of commitment and trust between clients and ourselves,” he added.
“We are also able to show continuity in the business, it’s the seventh generation that runs the business. There is continuity of management and the family in the last 200 years.”
Bakhtiar has been with the bank since 2003 and speaks seven languages including French, Spanish, German, Italian and Farsi. He has seen a difference in the investment tendencies of his clients in the Middle East.
“Clients, in general, are more cautious and are more involved with the contents of their portfolio,” he said. “The media has had the effect of kicking the crisis into every single household – everyone seems to know today what a hedge fund and subprime mortgage is. People are much more aware on issues of liquidity and risk.
“The tendency now is to take a bit more time to explain to the client what is being invested. This also translates to a more risk-averse client profile.”
Although Bakhtiar declined to go into specifics, he said: “Portfolios are affected. Our focus is on capital preservation. We are part of a system that is going through a turbulent time and we have performed better than our competitors. We are able to weather the storm and it is about how you position yourselves in the long term. Our investment outlook focus is on a three to five-year horizon for our clients; we are not subject to pressure to deliver short-term results.”
The Middle East market, together with Asia, has been singled out by Lombard Odier’s management as engines of growth for the private bank. Bakhtiar is still confident of the long-term prospects of the region even though many players are adopting a wait-and-see approach to get better clarity on effects of the global crisis on the Middle East economy.
“The Middle East markets are going through a rough patch right now,” Bakhtiar acknowledged. “We have witnessed tremendous growth in the past five to six years. Now we obviously have to readjust but the long-term potential for the region is still intact,” he said.
“We can see that there are already certain measures being taken by the UAE government and also other governments in the Gulf to reassure investors and provide liquidity where it’s needed. It is hard to predict when the crisis will turn but the region has extraordinary leadership and management. They are nimble enough to adapt to what is going on,” he pointed out.
“People will still look at emerging markets like the Middle East. At the end of the day, the economy here is not shrinking even if growth is curtained from double-digit to single-digit unlike in Europe where you see a contraction across the board. Opportunities still remain.”
“The bank has reiterated its commitment in the region,” said Bakhtiar. “We definitely have plans to scale up the team intelligently if there are specific opportunities to bring new people on board. As clients are more exposed to the press and what is going on, people are more interested in the private banking and asset managers as opposed to the larger institutions.”
The bank currently has 25 staff covering the Middle East with seven based in a Dubai office which opened in February 2007.
“We have been covering the region for the past 50 years and establishing a physical presence is a natural step for us,” said Bakhtiar about the Dubai branch.
Being a Swiss-based institution, Lombard Odier will invariably be thrown in the spotlight over banking secrecy issues. However, there is a very low or non-existent tax structure for most Middle Easterners, making tax evasion that has dogged the rich in the US and Europe a non-issue in this region.
“Banking secrecy is still very much enshrined in the Swiss constitution,” Bakhtiar emphasised. “As far as the Middle East is concerned, there is no specific concern focused on this area. As there are no fiscal or tax considerations here, the client is very focused on the level of service and will find secrecy is not going to be jeopardised