Partners at Pictet, one of Geneva’s most distinguished private banks, considered abandoning its commitment to the unlimited liability model at the height of the financial crisis.
The model, which is the cornerstone of traditional Swiss private banking, means banks must have at least one partner with unlimited liability for the bank’s commitments.
But Jacques de Saussure, a managing partner at Pictet, said partners had discussed alternatives to the approach when US investment bank Lehman Brothers collapsed in October 2008.
“We have looked at it,” he said. “When Lehman collapsed it was not comfortable. We were looking at counterparty risk in minute detail, partners were looking at details like ‘how do you transfer money from one bank to another’. If you had a huge transfer to make from one bank to another you had to do it in several steps. Your question is very interesting, because we did look at it [scrapping the unlimited liability business model]. But it remains an important part of our business model and it would be detrimental to get rid of it.”
The admission highlights the extent of the turmoil felt during the crisis at even the most conservatively run private banks. Pictet is among the founding members of the Swiss Private Bankers Association, formed in 1934 after the introduction of the Swiss Banking Law. It has 14 members, including the likes of Lombard Odier, Mirabaud and Wegelin, which were considered to be some of the main beneficiaries from the financial crisis because of their reputation for stability and low risk investment management.
Saussure forecast consolidation among some of the smaller unlimited liability businesses, though said Pictet was not committed to making acquisitions.
“We do not want to buy goodwill, but create it,” he said.
Saussure added it was better to acquire people than businesses, saying acquisitions tended to be dilutive to overall book value. The smaller banks are facing pressures on rising regulatory and compliance commitments on the cost side and have been hit until recently by declining assets under management figures because of falling asset values.