This is the first installment of an Executive special report on wealth management and private banking. The rest of the report will be published here over the coming week.
It should not be surprising that combinations of Swiss and Lebanese virtues have a lot of potential for profitable relationships, including some that are taciturn to the point of being almost clandestine. Private banking is first among them. Although the business is as old as banking itself, private banking would never have become what it is today — namely a business model built from confidentiality, asset management fees and ultimate skill in pampering the rich — had it not been for people like the ultra-discrete Edmond Safra moving from Lebanon into the world and for others walking in his footsteps. Union Bancaire Privée (UBP), the Geneva wealth vault of Beirut born Edgar de Picciotto, a Mizrahi Jew like Safra, is a supreme example.
In building his private banking universe, Safra circled the world from Beirut to Milan, São Paulo, Geneva, New York and back to Geneva. His path evidences that, while private banking always went across borders, it had morphed into a veritably global banking play already in the ’60s and ’70s of the past century.
From this perspective, there is nothing unnatural about the fact that international private banks beat the asphalt of downtown Beirut in search of business to take to their parent offices in, mainly, Geneva. This financial invasion force includes Swiss providers Credit Suisse, Crédit Agricole Suisse and UBP, which are licensed financial institutions, as well as UBS, which according to Banque du Liban is active via a representative office.
The local recipe
Their presence is a challenge to the assumption that private Lebanese financial assets should serve the Lebanese economy by being invested here. However, the story of managing wealth and development is neither this simple nor likely to change in the short or long term.
Crédit Agricole Suisse Liban, which resides in downtown Beirut’s Annahar Building, is actually seeking to expand its footprint in Beirut, says the financial institution’s chairman and general manager Peter Chamlian. Himself a Lebanese banker of Armenian origins, he sees every practical as well as fundamental reason for international private banks to be offering their services here.
On account of fundamentals, Chamlian’s rationale for the presence of international private banks in Beirut can be captured in one exhortation: diversification. “Private banking is a lot about allowing people to diversify their assets outside from where they are. It is my belief that one should not invest all his assets in one place,” he tells Executive, reasoning that in the context of our open global economy, international private banks provide avenues to diversify their assets beyond their geographic locations and areas of business expertise.
This is extremely hard to argue against, given the size restrictions that hamper the Lebanese economy as a sole or even partial destination of investments and also given that diversification as a concept is about as deeply entrenched in the history of wealth preservation as the idea of wealth itself.
In practical terms, being in Beirut simply allows the bank to better tap into Middle Eastern assets. “We consider the Middle East to be an important part of our business; it is an important chunk in terms of total assets under management [AuM], which are around CHF 44 billion [$48 billion] and the strategy is to continue to focus on the area,” says Chamlian. He concedes, however, that the non-availability of data precludes quantifying the size of the wealth management business of Lebanese banks and thus does not allow comparing the bank’s market position to those of other providers in the way it can be done in Switzerland.
He confirms that the regional base of high net worth individuals (HNWIs) has been contributing a growing portion to total AuM at CA Suisse, against a backdrop of the financial institution’s flat-trending AuM in the past two years. In regard to the Middle East based HNWI clientele, CA Suisse Liban collaborates closely with the United Arab Emirates based satellite office of CA Suisse. “We are sister companies and the presence of Lebanese in Dubai mandates that we cooperate a lot,” Chamlian says. He declines, however, to quantify the regional business volume and growth rates, citing group policy.
The decisive factor in making Beirut a viable business location for CA Suisse, however, appears to be the African and Latin American diaspora of wealthy expatriate Lebanese. This group comprises “easily 50 percent” of the bank’s business in Beirut, Chamlian explains. “When these people, who work for instance in Africa, earn money and want to preserve it, they tend to favor places such as Switzerland for diversification purposes. Lebanon is a very good hub to serve these people; we either visit them [in the countries where they work] or see them in Lebanon when they come here.”
While they seek to place money in assets that are located outside of Lebanon, members of the diaspora tend to visit Beirut regularly, making it beneficial for CA Suisse to have a physical presence here. An auxiliary factor for drawing business is that CA Suisse’s parent, France based Crédit Agricole Group, which claims 49 million customers, is a familiar name to many expatriate Lebanese who reside in francophone Africa. “We don’t meet people who have never heard of Crédit Agricole,” Chamlian says.
In terms of locally based competition, the Beirut office vies for clients mainly against the handful of other international private banking names who have a presence in Lebanon. By contrast, Chamlian claims that Lebanese banks are not major competitors. He alludes that the international–local contest is somewhat unequal because on the one hand CA Suisse is a Europe based entity whose assets are outside of the country and thus the bank cannot offer the same deposit interest rates as Lebanese banks award to their private banking clients.
On the other hand, having the larger and more sophisticated structure of a Swiss bank, the wealth management products and portfolio reporting services that CA Suisse affords its clients cannot be fully matched by Lebanese providers, the banker maintains. “The quality [of reporting], with all due respect to Lebanese banks, does not compare. Portfolio valuations, monitoring and advice on their transactions that clients receive require sophisticated IT systems. Given the size of the market, local banks cannot place such big capital to have sophisticated IT as you find in Switzerland.”
Of course, having world class IT, whose services CA Suisse according to Chamlian hires out to some 20 smaller banks in Switzerland but not to a single bank in Lebanon, does nowadays not mean that a financial institute is sheltered from all vagaries of financial existence; and neither is there total safety in being a private bank based in Geneva.
Crédit Agricole Group, which already two years ago sold its Greek subsidiary Emporiki for €1 ($1.33) after incurring billions of euros in losses from the Athens based commercial bank which it had acquired for €2.2 billion ($2.9 billion) in 2006, last month again took a hit, to the tune of €700 million ($900 million), from the recent unexpected crumbling of Portuguese lender Banco Espírito Santo (BES). The French group wrote down its entire 15 percent stake in BES.
In terms of wealth management, the fallout from the global financial crisis has brought upheavals, reputation losses and forced consolidations upon the financial industry. Swiss private banks were no exception as shown in the example of UBP, which was hurt massively by the Madoff fraud. The bank recently reported figures indicative of a recovery, however, led by its octogenarian chairman de Picciotto who had come back from retirement to restore its fortunes.
Moreover, in a world where the hunt for wealthy tax evaders and violators of political sanctions — and their bankers — has become the favorite sport of the United States and numerous European governments, Swiss private banks have become high value targets, to the point that industry insiders are talking about an impending second wave of consolidations after player numbers already shrank 20 percent in the past five years.
Worlds and oysters
While the next recipe for private banking, also common in Switzerland, seems to be based on the well known paradigm toward concentration of capital, this should probably not be interpreted as a sign that private banking in places such as Beirut will breathe freer from foreign competition in any future. Asia is seeing the formation of new private banking centers, such as Singapore, and also from Switzerland there will be no lack of wealth management offers, including from players with historic links to Lebanon such as the Safras, whose J. Safra Sarasin Holding agreed just in April to take over Morgan Stanley’s private banking activities in Switzerland. The Basel headquartered J. Safra Sarasin private bank was formed in 2013 through the Safras’ acquisition of a controlling Sarasin stake from Holland’s Rabobank.
There is every evidence, then, that international wealth management is here to stay, with incremental rather than fundamental changes afoot. Yet that may not be enough to help with the global picture. Under the perspective of the ongoing big wealth distribution discussion, private banking is a cog in the overall machine that has in recent years functioned perhaps a bit too well for the preservation of capital, at least when one subscribes to the findings of Thomas Piketty.
Certainly, for all the wealth they manage, private banks appear outmatched when it comes to the question of fair distribution of wealth. Yet, from the perspective of a private banker such as Chamlian, HNWI clients and their wealth managers are in the end just as sensitive as anyone when it comes to doing stuff for others. CA Suisse, like so many financial institutions, has a philanthropic foundation that coincidentally did its first-ever project in Lebanon, he says, adding with a small sigh that such efforts are too often merely taken note of but not emphasized enough.
Correction: A previous version of this article mistakenly claimed that Union Bancaire Privée only operates in Lebanon through a representative office. The bank has recently established a financial institution. Apologies.