In a flurry of overseas investments in
Switzerland, Bank of China has been given the go-ahead to start a
private bank, and AIG Private Bank has been bought by Middle
Eastern investors. It has also emerged the latter suffered a
substantial decline in AuM following its parent’s troubles.
William Cain reports.

Jacques Mechelany, Bank of China (Suisse)Bank of China has launched a private bank in
Zurich’s prestigious Quartier des Banques, making it the first
Chinese private bank in the country.

And, in a sign Switzerland is maintaining its appeal as a wealth
centre despite various regulatory attacks on its banking secrecy,
Middle Eastern investors have snapped up AIG Private Bank. The AIG
Private Bank brand will be discontinued following its sale to Aabar
Investments PJSC (Aabar), an Abu Dhabi-based investment company,
for CHF307 ($254 million), subject to regulatory approval. Aabar
said it would ditch the AIG name after a loss of credibility –
PBI has learned AIG Private Bank’s assets under management
fell from CHF21 billion to a current level of CHF10 billion since
the start of difficulties at parent American International Group
(AIG).

Under Aabar’s control, the bank will look to strengthen further
in the Middle East, following a recent launch of wealth management
services in Dubai. The bank will also continue to serve high net
worth individuals in Switzerland, Western and Eastern Europe and
Asia.

Bank of China’s (BoC) new operation, Bank of China (Suisse),
which has been given the green light to start operating by the
Swiss Federal Banking Commission, will offer services to Chinese
and international ultra high net worth and high net worth
clients.

‘Strength and integrity’

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It should be well placed to pick up business from Chinese and
other emerging market customers that previously looked to European
institutions for financial strength and integrity. The bank is
aiming to use the strength of its brand and its access to the
Chinese market, including in-house research on investment
opportunities, as key selling points.

Phil Molyneux, head of finance at Bangor University and a former
consultant to Citi private bank, said: “The large banking
institutions have seen a steady slide of their assets under
management towards family owned private banks because many have now
lost their credibility. If you look at where a lot of the new
wealth is being generated, it is in the Middle East and Asia and
those kind of clients may now shy away from putting their money
with the big Western universal players and focus more on the
smaller private banks or increasingly credible international
players.”

Bank of China has recruited a team of 40 private bankers, with
both Chinese and international private banking departments to
enhance its service quality. It is operating on a local IT and
operations platform outsourced to Crédit Agricole. The business
will be headed by Jacques Méchélany, with the board including Dr
Kenneth Ge, chairman and CEO of Bank of China (UK).

Segregated systems

Méchélany told PBI: “We will operate as a true Swiss
private bank, with IT systems which are segregated from group
systems.

“We have decided after extensive due diligence to outsource IT
and back office systems to the Crédit Agricole platform which
already services a number of other Swiss institutions. That will
enable us to attract a high level of talent.”

Bank of China entered the private banking business in 2007.
Switzerland is its first step overseas following initial branches
in Shanghai and Beijing.

It has been working on improving its private banking offering
with numerous high profile partners including Royal Bank of
Scotland (RBS) and UBS.

The partnership with RBS, which holds an 8.5 percent stake in
BoC, has been in the form of a joint venture in China. BoC said it
had helped the bank improve its operating procedures, leading to an
increase in its product capability and customer base. During the
first half of the year, its domestic wealth management customer
base increased 12 percent and assets under management grew
“steadily”, according to the bank.

UBS, which owns 1.33 percent of the bank, has been co-operating
with BoC on developing and customising of products.

The sale of AIG’s private banking business was widely expected
following the travails in its main insurance business which has
seen the US government inject $152 billion into the business
(see PBI 241). The disposal is part of the wider sale of
its asset management division, AIG Investments, which had assets
under management of $766 billion at the end of 2007. The private
bank has CHF13 billion in assets under management, with offices in
Hong Kong, Shanghai, Singapore, Taiwan, São Paolo and Dubai.

Eduardo Leemann, CEO of AIG Private Bank, will remain at the
bank, as will his senior management team. HE Khadem Al Oubaisi,
chairman of Aabar, will also become chairman of the private
bank.

Zweiplus could be dropped

There remain question marks over the future of the private
bank’s joint venture with Bank Sarasin, Zweiplus Bank, in which it
holds a 42.5 percent stake. Bank Sarasin is the majority
stakeholder of Zweiplus, a Swiss product and settlement platform
for asset managers, independent financial advisers and affluent
individuals. The JV has assets under management of around CHF8.5
billion and 140 employees.

But the business focuses on the mass affluent segment, rather
than HNWIs, and is geographically centred on clients in Germany,
Austria and Switzerland. That brings into question whether Aabar
would see any strategic benefit from maintaining a stake in a
business with which there are few obvious synergies, according to a
person familiar with the situation.