Accidental banker Herbert Scheidt tells finews.asia why a disastrous Deutsche Bank deal put him off acquisitions at Vontobel and what Switzerland got wrong on banking secrecy.
Herbert Scheidt, how did you «accidentally» become a banker?
After studying at the Institute of Development Studies in Sussex, I worked in Rome for the Food and Agriculture Organization – the FAO. It was my first job, in 1979, and I was the assistant to the general director. It was hugely interesting. I traveled with the first United Nations delegation to China.
When the U.S. halted U.N. funding and projects dried out, I returned to Germany and applied as a trainee at Deutsche Bank, where I thought would be quickest to get back into development projects. Deutsche Bank said at the time that I was exotic, but that they'd give me a shot.
You stayed at Deutsche Bank for 20 years.
Yes, I worked in investment banking in Frankfurt, New York and Milan during the 1990s, when capital markets were being revolutionized with new financial instruments. I wanted to do something different after ten years, which brought me to Geneva in 1996 as head of Deutsche Bank international wealth management.
The old days of banking secrecy and offshore clients.
Absolutely – a different time with different standards, but the changes became apparent. In Luxembourg in the mid-1990s, investigators raided Deutsche Bank offices because of offshore client relationships and seized files. This really hit me deeply. It became clear to me that Swiss banking secrecy would not exist in that form for very much longer.
«I proposed that Deutsche Bank Switzerland be floated publicly»
In hindsight, I have to say Switzerland – and by that I mean the industry as well as the country – missed the chance to address the pressure on banking secrecy early on. As former Swiss National Bank President Philipp Hildebrand once said, everyone was dancing around the golden calf.
The golden calf – banking secrecy – was enormously lucrative for Switzerland.
Many people had the idea that Switzerland could keep going with the offshore model. Banking secrecy was a national, systemic distinguishing factor. We could have read the writing on the wall as early as the 1990s when the debate over dormant accounts surfaced. That's when the international community began to get really irritated at how Switzerland did business.
Why then did you leave Deutsche Bank in 2002 for a traditional Swiss private bank?
I had found my professional home in international wealth management as well as in Switzerland. I even proposed to Frankfurt to float part of Deutsche Bank Switzerland in a public stock listing. I remain convinced today that the Swiss unit was worth a lot more than headquarters thought.
Why did you fail to convince Deutsche Bank to do so?
Investment banking was becoming more dominant while wealth management especially out of Switzerland was increasingly a distribution channel for capital markets financial products.
«The Vontobel name was better than what was on the inside»
The danger of neglecting our fiduciary duty to clients was increasing, and we no longer saw any options to further develop the business within Deutsche Bank. I got the offer to become CEO of Vontobel and said I've give it a try.
This was in the midst of the dot-com bubble with decimated the bank.
The name «Vontobel» was indeed a lot better than what was inside the bank. We ended 2002 at break-even, the share price was at 13 Swiss francs (currently 75 francs). It was a huge mess.
I told the board that our organizational set-up looked like a chicken had fallen into an inkpot and walked across a sheet of paper. We changed the entire structure, set up three areas, and appointed clear leadership in each.
You're stepping down next year after 20 years. What were the key milestones for you?
When I joined in 2002, the issue of data theft in Liechtenstein was a huge one. German officials had arrested Post CEO Klaus Zumwinkel in a very public way. As the new CEO I put a lot of pressure on our organization to sever ties to unacceptable offshore clients, but it took a lot of time for the notion to sink in everywhere.
Why, is the issue was so easy to identify?
Many clients were unwilling to concede the imminent threat. We also needed to raise awareness of a new reality for our client advisers at a time when everyone basically thought the world could keep on going as it had. To do both – win clients as well as your own advisers – was difficult. Our technology wasn't as efficient as it is today, where you can see all U.S. client data at the push of a button.
«The deal was a disaster for us»
We cleared everything up and decided to found an entity regulated by the U.S. Securities and Exchange Commission, which we did in 2009. We were early, which helped us to get out of a fine in the U.S. tax dispute, unlike many other Swiss banks.
Vontobel agreed a cooperation with Raiffeisen, which ultimately ended in a court dispute. What was your perception of ex-Raiffeisen CEO Pierin Vincenz?
Vontobel already had a successful distribution agreement with Raiffeisen from the mid-1990s. By 2002 and 2003, when Vontobel wasn't doing particularly well, Pierin Vincenz was thinking about how we could use our situation to his advantage. Eventually, Raiffeisen took a stake in Vontobel. The relationship hit the rocks when Pierin Vincenz couldn't make his ideas reality.
What did he want to do?
He envisaged an ménage-à-trois. Besides Vontobel, he wanted to bring Bank Sarasin on board and merge the three banks, over our heads. That was never our idea or vision, which clouded the existing partnership between us.
Vontobel has been accused of sitting on the sidelines of Swiss banking consolidation. Why?
Our motto was always to acquire based on strong organic growth. We looked at every potential target. Our reluctance was also rooted in my experience at Deutsche Bank.
In what way?
When Deutsche Bank bought Bankers Trust for umpteen billion in 1998, I was in Switzerland and the responsibility for integrating the U.S. bank's international wealth management fell to me. The deal turned out to be a disaster for us. We genuinely tried to create value for our clients and the bank, but it was all smoke and mirrors. That's why I came away saying an acquisition needs to fit to work.
«I regret not buying Notenstein La Roche earlier»
In the early 2000s, everything was just too expensive for a while. We found Commerzbank's Swiss business, British asset manager Twentyfour, and Finter Bank among others to be a good fit for us though.
I regret not acquiring Notenstein La Roche earlier; we already had the eastern European business as well as its subsidiary Vescor, but we did it piece by piece instead of simply taking everything in one swoop early on, at least in the wealth management business.
Unlike other Swiss banks, Vontobel was long dilatory about Asia. Why?
Asia is undoubtedly one of the most important growth regions in the world, but we always said we don't want to compete with local banks. Instead, we see ourselves as a house for Asian clients who want to have some of their wealth managed in Switzerland.
«We're refining our model of partnerships»
We do this directly or sometimes with partners like the Bank of Singapore. We're refining how we approach partnerships. We've realized that, due to low or negative interest rates, many larger financial institutions need return-yielding investment products that they cannot manufacture in-house. They're interested in partnering with firms they don't compete with. We see opportunities as a specialized asset manager and «bank for banks» to grow in Asia as well as elsewhere.
You reorganized Vontobel as an investment house nearly two years ago. To what end?
We needed to act, against the backdrop of digitization changing so much in society as well as in business. Clientele expects services from their banks like ones they get from Amazon or Apple. Clients no longer come to Switzerland because of banking secrecy, but for investment solutions – which for a bank are what an engine is to Mercedes.
«As long as we take deposits, we're a bank»
That means we need to be set up in a client-centric and data-driven way. It's not enough simply for client advisors to think this way – it needs to flow through the whole organization. It's easy to say but emerging from our current structure and becoming transversal takes a lot of convincing and practice. Vontobel is a high-performing investment engine supporting various distribution channels, depending on client needs, with our digital skills.
Vontobel is no longer a bank.
As long as we take client deposits, we're a bank, but you're correct in terms of the system. We're an investment technology company.
Herbert Scheidt, chairman of Vontobel, joined the Swiss bank as its CEO in 2002. He studied economics at the University of Sussex and earned an MBA from the University of New York. He initially worked for the Food and Agriculture Organization before joining Deutsche Bank's investment bank in 1982. He then ran the German lender's international private banking from Geneva until 2002. He has also been the chairman of the Swiss Bankers Association since 2016 as well as other lobby mandates including Economiesuisse.
