BCGE adapts to its surroundings
There's a whiff of the David and Goliath about it. A relatively little-known Swiss bank with Sfr18 billion ($17 billion) in assets intends to take market share in Asia from its two biggest rivals, Credit Suisse and UBS, both global behemoths with well-established footprints in the region.
Banque Cantonale de Genève (BCGE), 80%-owned by the Swiss government, is one of the country's 24 cantonal -- or regional -- banks. The combined assets of those two-dozen firms is Sfr404 billion, less than half the Sfr1 trillion held by either Credit Suisse or UBS.
Yet the global financial crisis has been a lot kinder to the regional players than their larger competitors. BCGE has not suffered anything like the problems over client confidentiality, balance-sheet markdowns or asset outflows that have plagued UBS, for instance, since mid-2007. In fact, the cantonal banks have taken in money over the past two years, says Jean-Louis Platteau, global head of private banking at BCGE.
The 24 Swiss cantonal banks were relatively unknown in private banking outside Switzerland two years ago, he explains. But the "flight to safety" led to them receiving $40 billion-plus in net inflows on a quarterly basis during 2008 and 2009. Most of the money came from Swiss investors, but it was followed by international capital, said Platteau on a visit to Hong Kong this week. "All of a sudden, people wanted to park their wealth in cantonal banks because of their stability," he adds.
BCGE's growing number of international private-banking clients is one driver behind its decision to expand into Asia, says Blaise Goetschin, the firm's chief executive. "We have decided to serve these clients, and that is the main reason we have made this move," he adds.
The bank received approval late last year to set up in Hong Kong, the office was opened on January 1 and Michael Chan is the regional chief representative. An office in Dubai is also on the cards, but Goetschin gave no likely timeframe for when it might open.
In addition to its traditional banking services and wealth-management offering, BCGE manages a few funds, largely Switzerland- and Europe-focused. Goetschin admits BCGE is not an expert in Asia-focused funds and will need help from external advisers on that front. However, clients will be encouraged to look for worldwide diversification, he says, rather than geographically segmented local investments.
Goetschin recognises the Asian approach to wealth management -- or perhaps we should say wealth creation -- is different from that in Europe, but emphasises the importance of stability and taking a long-term view.
"We are not saying that the more aggressive products will disappear," says Goetschin, "but we are much more influenced by Confucius in our vision than Wall Street." His reference is to complex, leveraged products such as accumulators and minibonds that have led to big losses for Asian investors in recent years -- particularly those based in Hong Kong and Singapore.
All this might suggest that BCGE would recommend less risky asset classes, such as bonds. Yet one of the first things they tell clients is that over a long-term period, equities -- specifically, the S&P 500 index -- have substantially outperformed all other asset classes since 1926.
"These are returns produced by the real economy," he adds. "The only performing asset class is equity. If an investor wants performance, he needs to be exposed to small, mid and large caps -- the value creators."
True, investors with a short investment horizon should stay in cash, he concedes. But if they operate on a five or eight-year basis or have no limitation on their investment, they should have a large exposure to equity.
Yet a different investment approach is not the only obstacle for BCGE to overcome in Asia. Stability and transparency are clearly important for attracting clients, but when it comes down to it, brand is a major issue in the region. BCGE may have increased its cache among European customers in recent years, but it is hardly a household name in markets such as Greater China and Southeast Asia.
The firm has acknowledged this by registering itself as 'Swiss Bank of Geneva' in Hong Kong, Macau, China and Taiwan -- an easier name for most Asian clientele to pronounce and understand.
Moreover, use of a country's name to sell a private-banking brand is an approach adopted by another firm recently -- Bank of Singapore (BoS), the entity formed by OCBC's takeover of ING's Asian private bank. It is too early to say how successful the strategy will prove, but trading on the stability and reputation of Singapore or Switzerland as financial centres seems unlikely to do either BCGE or BoS any harm.
"Brands do play a key role here," says Platteau. "And when you go for market penetration, visibility is key. We have tended to keep a low profile and stay under the radar -- but in this region we have to adapt."
The client-referral approach is a long-term play, he adds, and the firm cannot take too long to get a foothold in the region. "We have to be more proactive or it may take 100 years to establish ourselves here. We can be patient, but not that patient."
Meanwhile, says Chan, BCGE's state ownership may well prove particularly useful in mainland China -- the market is virgin territory for private banks, and potential clients may not know even the bigger names. "When banks go in with state control, it plays well with people there," he adds, "because most of the major banks there are state-controlled."
BCGE has a three-year business plan that started in August last year, adds Platteau, but he would not give any more details. He points out that BCGE has to provide more detail on its local activities in Switzerland than its main rivals. "Every year, we produce a hugely detailed report on what we do that can be seen by our competitors," says Goetschin. "But I have no such information on UBS and Credit Suisse in the Geneva market."
One area where competition is particularly fierce in Asia is in recruiting talent. So what will Swiss government backing mean for BCGE when it comes to compensating employees? Will the firm be limited as to what it can pay senior executives?
"It's very simple -- it's a model between the cash flow and the profits, and we have to discuss how we can share the profits," says Goetschin. "You can find my wage in the annual report, and I have no problem with having a manager in Hong Kong who is paid 10 times more than I am." (For the record, his total remuneration for 2008 was Sfr1,208,920 and at the time he held 2,056 shares.)
Goetschin stresses the importance of looking at "the real cash flow contribution" and notes that the bank's stability, solidity and state guarantee are part of the cash flow. "Then you have to measure the real contribution of the individual before you start to discuss bonuses," he says.
"Of course, there are the real value-adding managers in private banking -- clearly there you have to pay," he says. "But then you might have 80 people who are much too expensive for what they're paid."
"We're not going to go into huge battles for top teams," Geotschin concludes. "We will be more discreet. If there is a contribution, we have no problem [with compensating for it]."