If ever there was a challenging time to lead a Swiss bank, it is now. Nicholas Moody speaks to Yves Mirabaud about combating the cross-border blitz on secrecy, its innovative approach to serving Asian clients and the evolving post-crisis demands on Swiss private banks.
Yves Mirabaud, like many other Swiss banking bosses, knows that the next four to five years are going to be tough.
Currently managing partner and a member of the executive committee at Mirabaud, he is to take over as senior partner from Thierry Fauchier-Magnan from 31 December.
Mirabaud describes the new position as more of an evolutionary than a revolutionary role. He is keenly aware of the changing business environment and the tremendous challenges facing the industry, particularly in Switzerland.
At the top of Mirabaud’s list is protecting client confidentiality, a thorny issue outside Switzerland’s borders, but crucial inside.
“Even if bank secrecy does not cover tax matters as much as it did before, it is still very important to offer the confidentiality and protection of the private sphere of our clients for many other reasons,” he says.
Fighting regulators on two fronts
Mirabaud, who recently finished his one-year term as chairman of the Geneva Private Banker’s Association, is fully aware that the battle to protect client confidentiality remains a war on two-fronts.
The Swiss industry is grappling with regulators internationally – dealing with regulations including Foreign Account Tax Compliance Act (FATCA) and the criminalisation of tax evasion from the Financial Action Task Force, and domestically – with European regulators (chiefly Germany and the UK).
Just as with his new job title, Mirabaud describes the discussions with regulators and the cascade of impending laws as an evolution towards increased transparency that it must deal with.
“FATCA will be world wide and we hope that there will be an international reaction in order to make this decision applicable at a reasonable level, which doesn’t seem to be the case today,” he says.
He may be heartened by news that the Internal Revenue Service will delay the phase in of FATCA, pushing implementation out from January 2013 to January 2014.
Despite this reprieve, the industry is working hard on the home front, through the Swiss Bankers Association, to find a solution to the ongoing wrangles over tax information with countries, including Germany and the UK.
Mirabaud says the four objectives of its discussions have been:
- Find a settlement for the past
- Be tax compliant for the future
- Keep the privacy of clients
- Gain access for Swiss banks to European markets, allowing Swiss banks to have access to onshore clients in other markets with a custodial bank in Switzerland
The three first objectives are in order to reach an equivalent to the automatic exchange of information.
Client confidentiality is at the heart of the discussions. Mirabaud sees the difference between secrecy and confidentiality meaning there is some exchange of information on a very limited basis.
“The idea is to try to find a solution [with other countries] that is an equivalent to the automatic exchange of information by preserving the private sphere and confidentiality of our clients,” he says
“We believe we are proposing a more efficient system than automatic information exchange.
“Switzerland had to change its tax information procedures and it agreed to exchange information on request of specific cases. What we are absolutely opposed to in Switzerland is this type of Big Brother, automatic exchange of information, which does not preserve your privacy.”
“We agree that people have to pay their taxes and we are ready to find systems to allow certain countries to do that – this is all the discussions we have had with Germany and the UK.”
“What we do not agree is to destroy this privacy and to have this type of list circulating with automatic exchange of information,” Mirabaud says.
Profits eaten up by strong CHF
Alongside regulatory challenges, managing the costs of running a Swiss private bank in Switzerland continue to occupy Mirabaud’s mind.
Although the company has won more mandates to manage new assets, these gains have been eaten away by the high cost of the Swiss currency – a common sentiment among Swiss banking bosses.
“The strength of the Swiss franc is a very difficult factor to manage,” he says.
“Because we are an export industry and we still own a lot of assets that are not denominated in Swiss francs as most of our costs are in CHF, so this is, for the time being, an important challenge for the whole industry that we have to work with and adapt to.
“It is not a very new situation, because the CHF has always been strong [But] the currency movement in the past 12 months has accelerated,” he adds.
Innvoation in serving Asian clients
Challenges abound, but so too do opportunities, albeit in markets outside Switzerland. Mirabaud is expanding its operations in the Middle East and pushing its asset management capabilities.
Unlike the bulk of its Swiss rivals, including Julius Baer, Sarasin, Pictet and Lombard Odier, Mirabaud has made a strategic choice not to establish a bank in the one private banking market on every banker’s lips: Asia.
“We have decided that we are not ready to have a bank in either Hong Kong or Singapore because we feel the competition is huge, the procedure to get a licence is very complicated and the costs are high,” says Mirabaud.
“The type of services required by Asian clients [i.e. financing commercial activity] is something we do not offer.”
Middle Eastern expansion
Yet this does not mean the bank has left Asia untouched. The challenges of establishing an onshore Asian presence has led Mirabaud to explore an innovative approach to servicing Asian clients, based around its expanding Middle Eastern business.
In 2010, it upgraded its banking licence in Dubai to allow it to offer custody, portfolio management and corporate finance services.
The upgrade means it can offer a booking facility in Dubai. Portfolios can also be managed from Dubai but booked in Geneva or Singapore to clients throughout the Indian subcontinent, and the MENA region.
Its inventive agreement with different banks, Bank of Singapore (BoS) being one of them, means it can still service clients who want a base in the city state, despite not having a physical presence in Singapore.
The arrangement allows Mirabaud clients in Singapore to book assets though a local bank but have it managed from its Dubai base.
“It is a very different model from most of our competitors,” he says.
“We send clients to them because they want to book in Singapore so we have an agreement with BoS but we manage and advise their assets.”
Mirabaud now has 15 staff in its new Dubai offices in the Dubai International Financial Centre to serve what it sees as a newly-emboldened region, led by former Julius Baer boss Ludovic Pernot. The bank expects to reach $1bn assets under management (AuM) from Dubai by the end of the year.
Offering an alternative
One part of the Swiss bank’s business that is not small, and Mirabaud is keen to develop globally, is asset management.
The asset management business, worth CHF10bn ($12bn), makes up about two-fifths of AuM.
But, increasingly, Mirabaud wants to offer its alternative investment products, equivalent to CHF5bn AuM, to a wider audience.
To help this build-out, Mirabaud bought a 30% stake in investment adviser Prosper in December last year.
Founded by Riccardo Barilla and Thierry Robin, former chief executive and head of sales of the Oyster fund range, the new fund is geared towards professional and private clients.
The two institutions agreed to jointly manage a €134bn ($192bn) multi-manager Undertakings for Collective Investment in Transferable Securities fund in Luxembourg.
“We are quite strong in the UK for asset management for institutional clients, we are also relatively present in Switzerland but we want to expand that,” says Mirabaud.
Selling products beyond Mirabaud
How is Mirabaud going to differentiate itself in the highly-competitive alternative investments space?
“Obviously we are not going to create indexed products, we are not going to manage huge bond portfolios at two basis-point margins,” he says.
“We believe with the hedge fund capability we have, with products, mainly linked to equity, we can add value.”
To do this, Mirabaud has built capability over the past two years, hiring operational risk managers, analysts, products specialists, and sourced hedge fund managers.
“We have approximately 20-25% of assets managed through alternative investments,” he adds.
“Even if we have used most of this product for our private internal clients, we could be more active in selling those expertise and products externally,” he concludes.