In an exclusive interview with finews.asia, Edmond de Rothschild's CEO has no plans to expand onshore regionally despite successful partnership in Japan.
François Pauly, where will you be celebrating Christmas this year?
That's a good question given the Covid situation. I think it will be in Luxembourg because I have three grown-up children living in three different countries and hopefully they will all make it home. New Year's Eve then - hopefully - in our vacation home in Crans-Montana in Valais.
You have been CEO of Bank Edmond de Rothschild for seven months. Before that, you sat on the company's board of directors. What’s behind this unusual step on to the operational side of the business?
That’s a legitimate question, and one that the Swiss Financial Market Supervisory Authority (Finma) also asked me. Normally, things are done the other way around. After being a CEO, you move to the board of directors.
But the very sad circumstances of the passing of the owner, Benjamin de Rothschild, in January 2021, as well as the fact that the CEO at the time went into early retirement, made me ask myself if I was prepared to take on the challenge at the age of 57?
And after realizing that at 57 one isn’t at all that old – I said to myself, I'll do it. This is also because Edmond de Rothschild is probably the only bank where I can still realize my potential. I saw it as an opportunity I had to take.
Where does your operational experience come from?
I had already been on the bank's Board of Directors for five years, so the familiarization process was quicker and easier than if a CEO had taken over from outside. I was also CEO of various banks for almost thirty years. In this sense, it was a balanced decision for both sides and not a risky one.
The bank is headed by Ariane de Rothschild, wife of the late Benjamin de Rothschild. What is your relationship with her?
I have known the family for more than 20 years, having come into contact with them through my own investments. We felt we had a lot in common, especially since I myself am lucky enough to have had a grandfather who founded a bank 100 years ago. In that respect, I also grew up in a family of entrepreneurs or owners. That's what connects us.
Which bank was that?
It was La Luxembourgeoise, now an insurance company, but founded in 1920 as a bank and insurance company, and of which I am still chairman of the board of directors.
What have been the most striking events for you so far as CEO of Bank Edmond de Rothschild?
Certainly the management style in times of Covid and home office. I haven't been able to get to know the lower management levels personally at all, especially since we have a very international structure and travel is still very complicated today.
There are also very high requirements when you come back to Switzerland. Knowing the employees is central, because management doesn't just mean numbers and systems, but above all exchanges with people.
«Who would have thought that you could walk into the bank with a mask?»
Our growth strategy was also formative, which is also a challenge in Corona times, because it is not so easy per se to maintain customer contact. But we managed.
Who would have thought that you could walk into the bank with a mask, see your customers on a screen, and get your deals done digitally even at a private bank? We went digital in a very short amount of time, without the physical component taking a back seat.
The year is coming to an end. Was it a good one?
Yes, for the industry as a whole. What reassures me is that we have grown in every market region where we have private customers - and not just because the favorable stock market development supported us and we were able to acquire more new money, but because we grew profitably. That shouldn’t be taken for granted.
What do you mean by this?
There is an example on Zurich's Bahnhofstrasse - with Quintet - of a private bank that did not achieve what it was aiming for with its growth and therefore exited the market again. Private banking is a difficult business, especially in Switzerland, where margins are very much under pressure.
What is your recipe for success?
We are fortunate that we can generate additional income from existing customers in the Lombard and mortgage lending business. And in view of the negative interest rates, advice is becoming increasingly important, which is also one of our strengths. Both these factors have a positive impact on our profitability.
What initiatives have you already launched with a view to 2022?
We have launched «Ambition 25,» a plan that sets out what we want to achieve by 2025. Growth will not be achieved primarily through acquisitions, but through organically, because we believe this is healthier. You've seen a few deals in the past that have been really successful. Of course, there are opportunities when, for example, a competitor exits a market, as UBS did in Spain, where you can become active. But at the end of the day, our vision is to be grounded and to thrive where we are already strong.
In Asset Management, the focus is clearly on expanding our Real Assets, Private Equity, Debt and Real Estate businesses. We are convinced that double-digit growth is possible for a few more years.
What are your biggest markets?
Clearly Europe. If we manage non-European assets, then only from clients who reside in Europe.
How important is Switzerland?
Switzerland is our largest single market - more precisely, clients who are booked in Switzerland. However, growth in Switzerland is lower than in other markets. We have a strong foothold in Geneva and are doing very well locally in Lausanne and Fribourg. Lugano is also an important location. In Zurich, on the other hand, we are nowhere - compared to other private banks.
Why is that?
I would say that historically we have been more of a Geneva/Paris/Luxembourg private bank, which has not covered the markets that one tends to deal with in Zurich, or only to a limited extent. The money of German customers in Zurich was never our focus.
Historically, we also tended to work on Eastern Europe from Geneva. We now have a good team in the city on the Limmat, but compared to the reputation of our brand, we should be much bigger.
What does this mean exactly?
In Zurich, we are not yet where we want to be. That's why we'll be hiring talented people in 2022. In addition to this, we will be servicing some customers from the Middle East who are booked in Switzerland, partly from Zurich. We also want to locate our real estate business in the city by the Limmat and expand our sales team in asset management – with a focus on German-speaking Europe.
We also want to focus on independent asset managers. The industry is in a state of upheaval, smaller independent financial advisors will not be able to sustain themselves, and it will be expensive for medium-sized ones to comply with the many regulations.
«We also want to focus on independent asset managers»
Against this backdrop, many independent financial advisors may be keen to work with a reputable partner like us, especially as we are very strong in terms of IT and extremely competitive with regards to our offerings in private equity, real estate and lending.
How much money do you need to become a client of Edmond de Rothschild?
It should be in the millions. That seems clear to me. But overall, we tend to take a long-term approach and look at the potential.
Can you explain that in more detail?
If someone has a million francs and, on top of that, a company that he wants to sell in the next three years, then the million is certainly not a barrier for us. However, if he is 70 and retired and tells us he has a million and wants to live off it, i.e. withdraw 100,000 francs every year, then there are certainly better banks than us.
The sweet spot is between three and five million francs. That's where the offer unfolds, also in terms of risk diversification. In any case, we don't have the approach of some U.S. banks, which clearly say: Dear customer, either you bring 50 million francs, or we won't even do business with each other. We definitely don't have that.
How can the Swiss financial center distinguish itself in the future?
In Switzerland, where political neutrality is respected and the opportunities for international exchange are so great, we are lucky enough to live in such a beautiful natural environment that the issue of longer-term and environmentally friendly investing must become central.
So that one can use the Swiss flag as a seal of quality for (financial) products. You then have the certainty that what is on the outside is also inside.
If we can achieve this, we will have enormous opportunities to raise our profile, which will meet with a worldwide response. Especially for investors who don't yet have much to do with sustainability.
Can you explain further?
The more China shifts to sustainability, the more likely investors across Asia will say, I want to invest in sustainable financial products. Institutional investors already have no choice but to go along, because the pressure is already so great.
With private customers, this is now slowly coming about as well. Of course, there are still some who say, all is fine, but overall, the trend is going in the other direction, especially among the younger clientele.
Private banks, however, are not very well known for having a younger clientele. How is that working out for you?
There are three entry doors for this clientele: first, via inheritance. That's where it's important to know each other beforehand, which makes one interesting as a bank. Second, there are more and more younger people today who come into money very early, for example in the technology sector, because they had the right idea at the right moment.
And finally, there is the «next generation,» where the clientele, mostly the parents, are happy if we «raise» the future heirs in a certain way and in terms of finance.
Covid plays into our hands in that we can now use digital means to appeal to this younger clientele. Whereas in the past you only saw these people twice a year at best, today you click on Webex and they are sitting right in front of you.
Why have you never actually settled in the growth market of Asia?
We are successful in Japan, through our distribution partner Nikko. Otherwise, our approach would have been to work this market offshore, from Switzerland or Luxembourg. But somehow we never found the right partners. There have been repeated attempts, but they have not been successful. Today, this region is not on my strategy map.
What are your priorities for 2022?
Organic growth, IT platform, expansion of real assets, and, if necessary, very selective M&A transactions when there are opportunities.
«If there are takeover opportunities, we will also look at them»
We are growing in Portugal, Italy, Spain and in Belgium. But we have by no means exhausted our opportunities. Consequently, if a competitor were for sale, we would certainly look at it. In addition, there are certain investment strategies in asset management that we do not yet cover ourselves, for example in corporate debt or emerging markets.
If there are takeover opportunities, we will also look at them. We can take a very relaxed approach to this because the family is not putting any pressure on us. The right deals are always made at the time of purchase anyway. If you pay too much at the beginning, you're always running to make up for the whole thing.
Banking secrecy used to be a central component of the Swiss financial center. How important is it still today?
There are three areas where one still expects a certain discretion and this discretion is quite actually also a human right: namely, where one lives, because not everyone should be able to enter my home; secondly, not everyone should have insight into my assets, and thirdly, my health and the corresponding data should remain confidential.
Nowadays, this form of privacy can resemble a Swiss cheese with holes in it, but these holes must be defined by law in such a way that they take into account the will of the person in question and are in a legally secure environment - in other words, they must respect privacy.
What motivates you to do this job at your age?
I'm not that old. I'm motivated by the idea that this bank can still grow enormously and achieve wonderful successes. I also believe that the responsibility as it is now arranged by the de Rothschild family is coherent, and in a few years' time we will be able to say to our daughters, although your father has passed away, your mother and the management have successfully developed this bank.
Luxembourg-born François Pauly became the CEO of Bank Edmond de Rothschild in June 2021. He previously sat on the board of directors of the Geneva-domiciled bank for five years. In addition to his current main function, he is on various other supervisory boards and chairs the family-owned insurance company La Luxembourgeoise.
