Foto: Jakub Hněvkovský

For challenged local private banks, this trend could be a new gold mine and banks seem ready to enjoy the new development perspective.

Lombard Odier Darier Hentsch & Cie, a Swiss family private bank founded in 1796, entered the Czech market in autumn 2007, when the financial crisis fully hit the United States and then moved into Europe. So far, the bank remained the only one offering Swiss private banking services on the Czech market. As the number of Czech and other Central and Eastern European wealthy individuals is set to grow because people who built successful businesses after the fall of communism are now contemplating retirement, the bank expects a more stable, yet constantly growing business in this region, according to Nicolas Fitaire, managing director of Lombard Odier in Prague.

Another lucrative line of business will be wealth transmission. As Czech families haven’t been confronted with this problem during the last half of the 20th century, this topic is going to concern many wealthy individuals in the near future, Fitaire said. This is why private banks can actually expect growing competition and it isn’t excluded that more Swiss or other foreign banks could join the CEE market to tap this new potential, he said.

Q: Has your business in the Czech Republic changed because of the crisis compared to the moment of your entry in 2007?

A: The business for us is not sensibly different than the business outside of the crisis in the sense that this bank has been doing this activity for two centuries. It already had to do this job in crisis periods, so we adapt to the situation, to clients’ requirements, to the financial environment and to product modification. Yet, because our job is to preserve wealthy individuals, the fact that we have or we don’t have a crisis doesn’t strongly change our philosophy. We have different questions from clients than usual, but our job remains the same: to preserve, protect and help clients find conservative solutions for their assets and sometimes also to adapt ourselves because they need some assets for their business and they move [them] from the personal part to the corporate part and vice-versa. We also act as a place of protection because usually in crisis they could consider that having a safe bank for a safe preservation of assets is interesting at the moment. So, the crisis has an impact that will redefine the type of relation with our clients a little bit, but it doesn’t change our main job, which is still the same.

Q: Do you feel any impact in the number of bank customers or in terms of volume of assets under management?

A: The assets under management for any private bank decreased last year as a consequence of market evolution and clients’ attitude: they needed some cash. Now, we are feeling that we are starting to recover, and that our clients are also recovering their confidence in the market evolution. The crisis isn’t finished for sure, but we feel that something is under way.

Q: Can you develop that a bit more and give some figures or at least percentages to evaluate this decrease?

A: I’m not allowed to give you such figures. Mechanically, when the market goes down for a certain amount of assets, the portfolio value also goes down. It doesn’t mean that we don’t have the same possibilities for recovery. You also have to consider two points totally in opposition. In a crisis, some clients need to use a part of their reserves to survive—this is the negative impact on the level of assets. Yet, the exact opposite is that in crisis, some clients need to feel more protected. The combination of these two reactions is nearly flat, so at the end the level of assets going down isn’t connected to the market position, but to clients’ reaction.

Q: So, what actually caused the major part of the decrease in the value of your asset under management portfolio? Did investors simply withdraw money to survive and eventually invest it somewhere else, or was this money simply lost as a consequence of market devaluations?

A: As a bank oriented to family preservation, we are by definition very protective and very conservative. If your question concerns our bank, we haven’t been exposed to risky toxic products because we never recommend such products. So, from client’s point of view, this impact wasn’t the strongest one. The only real impact was the depreciation of the portfolio itself because of the market, not because of exposure to risky products.

Q: You say that your bank didn’t go into exposure to toxic assets, but many of your Swiss colleagues did, despite their conservative and cautious nature. What does this crisis say about Swiss banking—is it moving to a riskier behavior then?

A: I will not talk about the other banks because it’s difficult for me, working for a ultra-protective old private bank that isn’t taking any risk in the investment or management process, to talk about what could have happened in the past at universal banks. It’s a totally different strategy: At a universal bank, you see the results at the end of the year and it could push you to propose some risky solutions.

If your question regards our bank, for us, there is no strategy change. As a bank, we had to provide the same service for eight generations of private wealthy individuals through different crises including two world wars and the strategy, which is family protection and transmission, is absolutely the same. I don’t feel myself [sending] a different message from the part of the bank than before. We have the same services to provide and the same attitude. The crisis didn’t change the philosophy of our bank.

Q: How many Czech customers do you already have?

A: I can’t disclose that figure, I’m sorry.

Q: Well, would you at least expect their number to grow in the future?

A: It’s the strategy of any financial institution to grow. We know some estimations of the market here and some figures produced by some of our competitors. The market is growing and we want to grow with it. 

Q: Can you be more specific? How much do you expect to grow per year, in terms of the number of clients?

A: It’s difficult to say. The minimum will be the level of market growth, but we’ll try to do more. We’re talking about a certain percentage of the population made of wealthy families who need the service of a private bank in terms of asset management, but not just in terms of wealth organization—also wealth transmission. We’re talking about this part of the market and this is growing.

Q: What does wealthy mean for you? Where does the benchmark start?

A: It’s a traditional question for Swiss private banks. I could tell you that wealthy starts with at least €1 million (Kč 25 million) assets under management, but it’s smaller or bigger than this. If you talk to a young entrepreneur on a market segment that is extremely profitable and with high opportunities, you could consider him a potential client even with fewer assets because he can grow. On the opposite side, if you talk to someone at the end of the career that has already sold everything and doesn’t want to invest anymore, it’s different. Private banking starts with assets under management at around €1 million. I don’t want to draw a barrier because it would be artificial. For sure, we are in the Czech Republic at an interesting moment. There is a group of individuals here between 50 and 60 years old, they made good business and good money, and now they have the problem of transmission. One of the jobs of private banking is to help such a person in that situation to protect assets, pass them onto the next generation and help them in this transmission process.

Q: Can you develop more concretely on how exactly you manage wealth transmission?

A: As a wealthy person, you are probably involved in business in different countries and have assets in different types of investments: pure capital, factories, buildings, participations in equity, etc. We could help you in structuring these assets and find the best solution to pass them to your son depending on what you expect from him. We have teams in Zurich and Geneva working only on this problem of wealth transmission.

Q: What happens in case a successful businessman has no successors—or if his successors would like to engage in something other than business?

A: We help in finding the best transmission process. For example, if you want to give your son partial control of the company, we can show you how to do it. This bank is managed by a few families for several generations, so it’s the experience that we have that could really help on this topic. We are also often in talks with clients who created a successful business and say that their son is crazy about painting and their daughter about dancing and they don’t care about business. We try to help even then, we have different programs to help them pass wealth to the next generation. Yet, the final decision isn’t ours. We aren’t the doctor of the family, we are just bankers; but if needed, we can help.

Q: Is the mentality of wealthy Czechs in some way different from your Western customers? 

A: I would say the reaction of wealthy individuals is nearly the same all over the world. The only difference you can find is more linked to their history. Czech history is interesting, because this problem of wealthy individuals is new. This is the Czech difference, but it’s also the Polish or the Romanian difference. Private banking services are something quite new, but I don’t see Czech mentality differences; wealthy people have the same problems and questions everywhere.

Q: What Czech market segments or sectors will deliver more wealthy individuals for your business in the future?

A: For us, the market is [made of] successful entrepreneurs in any type of business. Any successful entrepreneur could be interesting for us. Then, you have peripheral successful people in different items like sports, for example, or in winery or land. For us, the attractive part is where the successful people are.

Q: Part of your business is also confidence-building. How do you manage language barriers to achieve that?  

A: Confidence is probably the most important point. The language barrier is managed differently. First of all, I am learning Czech and I try to speak, even though it isn’t easy, but I want to succeed. By chance, we have many entrepreneurs who speak English. I’m also working with colleagues who are fluent in Czech; we produce documents in Czech and we are trying to increase this capacity to be more Czech-oriented.

Q: Do you notice any kind of difference in customers’ reaction or behavior now compared to 2007 when you entered the Czech market?

A: Yes, I see one major difference—in 2007, you had a lot of people who talked about beautiful portfolio performances of 7 to 10 percent. This crisis reduced expectations and now I feel they are more mature. Clients now understand that in any type of financial investment the notion of yield is connected to the notion of risk. This is clearer now.

Q: Which other tools are you using to build confidence?

A: Banking secrecy is something that is in the Swiss constitution. The Swiss mentality and Swiss people consider that the topic of financial assets is something confidential and they don’t want to talk around about it. We have this in our DNA. Because I work for this bank, I have that with me, plus the same reflexes and procedures like any Swiss private banker. It’s something much appreciated. I want to insist on the fact that we have procedures to guarantee confidentiality, but this isn’t a story about procedures, it’s really a mentality. That is very important.

Q: What was the first reaction of Czech wealthy individuals to these uncertain crisis times? 

A: If they come to us, it’s because they feel that we could protect something. They don’t come to us because they expect fantastic returns—they come for protection and we provide this. For two centuries, this is the added value of the Swiss banking industry: to protect and preserve. Then, we start the discussion and make an analysis of what type of risks they are willing to or refusing to take and go into technical discussions. Yet, the first reaction is the need for protection.

Q: Would you expect more customers to feel this need for protection now because of the crisis?

A: In the Czech environment for sure, for one reason: if you observe the last 20 years, the reaction of wealthy people was to reinvest because the market was growing so fast and opportunities were everywhere: real estate, industry, stock exchange, even the Czech crown. For 20 years, the reaction has been to reinvest. Now—because of this crisis, of instability and the level of curves that goes down—the other reaction is to say: OK, maybe we finished a part of our history; local reinvestment is over and now we have to think about protection and preservation.

Q: What other trends can you foresee in the Czech private-banking landscape?

A: The market will be more regulated, more stable and focused on the long term. In a country that is entering the capitalist economy, the market is very fast and very reactive. This is over. Now this country is moving and growing like any other country without the same history. Things will be more quiet, calm and regular, which means a more regular evolution of banks on this market.

Q: Speaking about other banks, what do you expect from your competition on the Czech market in the future?

A: If we talk about competition, we are the only Swiss private bank here. If we extend the notion of competition to the same type of services, we have universal banks with a private banking division; private banks [that are] not Swiss; and financial intermediaries. For the moment, the situation isn’t stressful in the sense that each player has a position and uses it. What will be the evolution of this competition—I really don’t know. Maybe tomorrow another Swiss private bank could arrive here; or a universal bank could start developing private banking here or decide on the opposite. I feel the offer will be more developed in the future, stronger and probably more aggressive because we’re talking about a business that is a new model for the country.

Q: How realistic is it that other Swiss banks could come and start tapping the Czech private banking market?

A: I don’t know the strategy of other Swiss private banks. If this market is growing, I don’t see reasons for other players not to come into the region. The region doesn’t necessarily mean only the Czech Republic, for sure. If we commonly accept that Central and Eastern Europe is a growing market for this type of business, certainly we’ll see new players.

Q: Where is the best place to be now: Prague, Vienna, Warsaw or Bucharest?

A: Lombard Odier had to answer this question three years ago and decided that Prague was the good place to be at that moment. As I understand the region now, I think it’s good to stay in Prague for many reasons. Prague is acting as a hub in this region. From here you can easily imagine having an office in Bratislava or in southern Poland. The strategy of each bank is based on the market and on the people. I don’t think there is a precise answer, but Prague is for sure an important place.

Q: Where do you see your business five years from now in the CEE region?

A: I think the business will be the same it was for 200 years: same type of services, personal relations with the client, trust, confidentiality and professionalism and external product offers. We’ll have more clients for sure, maybe more locations, but not a strong difference in the job. Of course, the typical Swiss private banker has always to adapt to the evolution of the market, society, mentality and family relations. In that sense, we have to follow this evolution. For example, last year we promoted a lot of financial services around sustainable development because we philosophically consider that it could be profitable. We also follow the evolution of the population age curve and we try to promote services around this topic. We are now developing funds and investment products to go in this direction and they are successful, ethically correct, and bring something new in our proposal. The evolution is the same, but we adapt ourselves.