The break-up of Switzerlands oldest private bank Wegelin & Co sent shivers through the industry, resulting in the rebirth of its non-US business as Notenstein Private Bank. Its CEO Adrian Künzi talks to Nicholas Moody about the last days of Wegelin and its renewed focus on Swiss institutional clients
Adrian Künzi had the kind of start to 2012 no one would wish for.
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He went from being the head of Wegelin & Co, the oldest private bank in Switzerland, to launching its youngest Notenstein Private Bank.
During that time, Künzi has experienced first hand the white-hot heat of the USs Department of Justices regulatory pressure and how quickly it can lead to tricky questions about a banks stability. 
Now, five months on from Notensteins launch, Künzi is leading a young organisation with a well-capitalised and stable new owner, Raiffeisen Switzerland Group, and ambitious targets for expansion.
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The break-up of Wegelins centuries-old private banking business is well documented, after being played out in public for several months.
On 3 January this year, the US Department of Justice charged three Wegelin bankers with conspiring to hide more than $1.2bn in client assets.
At the time, the bank said US prosecutors posed no threat to the bank, but as January passed the pressure on Wegelin grew steadily, both from regulators and its own clients.
Finally, on 27 January the bank announced it was selling its non-US private banking business to Raiffeisen Switzerland Group, creating an entirely new entity Notenstein Private Bank.
This left only its US clients in Wegelin.
"In January our clients got very worried about the safety of Wegelin," Künzi says. "If you can no longer say with 200% conviction, Yes this is a safe bank, then you have to take immediate action. You have to try and change the situation in a very dramatic way; this is what we basically did."
It was not just private clients who were worried about Wegelins future. Its counterparties were nervous and asking the same questions about its safety.
"Some of our counterparties started asking us questions, What is going on and can you still guarantee that bank Wegelin is a safe place?.
"This led us to the conclusion that we had to act, but we had to move on and this is why we decided to do this [Raiffeisen] transaction," Künzi says.
New beginnings
Understandably, Künzi is eager to put the traumatic experience of Wegelins break-up behind him, as he focuses on the future of what is now Switzerlands newest private bank.
The Raiffeisen transaction allowed the transfer of 700 employees and CHF21bn ($22.1bn) of assets.
Almost five months on, Notenstein has lost only CHF1bn in assets and the outflow of clients has stopped.
In fact, says Künzi, there has been an inflow of funds from its institutional clients, including pension funds and foundations, who see Raiffeisens AA rating as a good signal of Notensteins stability.
Despite the circumstances surrounding Notensteins launch, Künzi has high hopes for the bank.
The one overarching strategic goal for the start-up is to be one of the top three private banks in Switzerland, he says.
Discounting the behemoths of UBS and Credit Suisse, he sees the main rivals for these top spots being Pictet, Lombard Odier, Vontobel and Julius Baer with their competitors differing depending on which region theyre in.
These high hopes are based on asset margin growth of 5-10% on a yearly basis.
Given the wider problems facing the Swiss banking industry, surely this sort of growth is overly ambitious? Not so says Künzi, for several reasons.
The first being its huge room for growth. Künzi estimates Notensteins Swiss market share to be just 0.5% at present.
A major strategic effort to target institutional clients chiefly Swiss pension funds, whose asset base Künzi puts at CHF600bn is a reason for these ambitious targets.
Currently institutional clients make up around a fifth of Notensteins client asset base, with private clients accounting for about 80%.
"We see a huge potential for us in the institutional client market and I think we have very good opportunities now being part of Raiffeisen with large Swiss institutional clients.
So this could rapidly increase our market share," he says.
Künzis projections for its private client business are more reserved, closer to 5% although he thinks the 5-10% range is achievable.
This goal of achieving top three status in each of Switzerlands big markets is based on a six-point approach that include a couple of simple but sensible rules.
A central part of this is being perceived as a safe custodian that is based around organic, not acquisition-led, growth with a low turnover of client advisers.
Künzi says Notenstein is also focused on providing solid strategic asset allocation advice.
"We are not a commodities house, not an equity house or fixed income house. We put emphasis on very thorough market and macroeconomic analysis," he says.
It also has a clear transparency policy: "We do not invest in black boxes or fund of fund of fund vehicles, we prefer the clear and simple structure which is direct investment in stocks and fixed income investments," he says.
Künzi is also unambiguous when he underlines Notensteins clear alignment of interests with its clients. As such, it is not interesting in selling financial products to its clients to increase the banks revenue.
Co-operation with Raiffeisen
This business-as-usual approach to its new venture begs the question, if Notenstein is essentially Wegelin, less its US business, and its operating with much the same approach to servicing clients, with the same management and staff, what has really changed apart from the name?
Künzi says there are 30 to 40 different areas of co-operation between the Raiffeisen group and Notenstein that will give it a substantially different edge. Its mortgage business and how to deal simply with its clients cash are just two examples.
Künzi says there may also be the chance to help develop an affluent product to leverage the 330 Raiffeisen banks and its enormous 1,000-strong retail network in Switzerland which takes in an estimated 3.6m customers.
For the moment, however, this is not a key strategy.
One of the key areas Notenstein has changed considerably is its policy on international clients.
New Notenstein clients from OECD countries must now sign a declaration document that their assets are fully tax transparent.
Unsurprisingly, given its predecessors run-in with US regulators, it no longer accepts US clients.
This is not solely due to the risk of future litigation; the Foreign Account Tax Compliance Act is cited by Künzi as a major reason for turning US clients away.
"It has become very, very complicated to have US tax-compliant clients so you probably need to have at least CHF2bn of US client assets under management in order to be able to do it in an efficient way," says Künzi. "If you do not have assets of this size, then you should not enter in this business."
Homegrown focus
Notenstein is adopting a homegrown approach to growth due to the advantages its union with Raiffeisen can give, and the industry-wide pressure buffeting Switzerlands wealth sector.
Increasing costs and squeezed margins mean keeping a tight control on expenses.
This is also a major focus at Notenstein. This cost-conscious approach is why it has no immediate plans to start establishing overseas offices.
"It is no longer possible to serve all clients of all the countries of this world so we have to make decisions about what are our key markets," says Künzi.
"A bank the size of Notenstein can maybe cope with 10 to 15 international markets at the most."
Künzi says the bank is undertaking a review of international markets and will implement a new cross-border policy for international private banking to define its new target markets over the next couple of months. This is likely to centre on between 10 and 12 international markets.
This homegrown approach makes sense when 70% of its client assets are Swiss, served through 13 branches.
"We dont have offices in Dubai, London, Hong Kong or Singapore, but we have offices in cities like Schaffhausen, Chiasso and Chur," Künzi jokes light-heartedly.
Of the remaining 30% of client assets, its international clientele is broadly diversified across Germany, Eastern Europe and Latin America.
This Swiss-centric focus does not mean that pursuing growth in countries like Germany, Italy, Austria and even the UK is off the agenda, although an onshore strategy is off the cards for the moment.
"I think an onshore strategy is always very costly, so it is not the right moment to go onshore in these markets," says Künzi.
"There is a middle way (between purely onshore or offshore).
You could get licences for certain kind of services or products. We are looking at the regulatory environment in each country for being fully compliant with its laws," he adds.
Industry challenges
Künzi acknowledges the Swiss banking industry is in the midst of a paradigm shift in secrecy and the way it operates.
"Switzerland has to evolve to find answers about how it should be positioned in this new world," he says. "We have to redefine our business model, our target groups, our client groups, our internal process, insourcing, outsourcing so there is a lot of work for banks," he says.
Despite Wegelins chequered final days, he is very much focused on the future.
"This transaction between Raiffeisen, a large retail bank, and a mid-sized private bank is unique and gives an excellent starting point for facing the challenges that Switzerland will face in the next couple of years," he concludes.
After the dramatic background to its creation, Switzerlands newest private bank is hoping the rest of 2012 will be far calmer.
