Size in banking is not bad per se, Romeo Lacher tells finews.asia. If the chairman of Julius Baer has his way, the private bank will manage one trillion francs in assets in seven years. He explains where the volume will come from and why a second major wave of outflows is looming at Credit Suisse.
Romeo Lacher, Julius Baer calls Asia its second home market. In mid-April, you moved into a new location with part of your existing branch in Hong Kong. Julius Baer now occupies four floors there with over 9,000 square meters of space and employs 500 people. What are the medium-term plans for Hong Kong?
Right, Asia is our most important market next to Switzerland. Accordingly, we want to grow in the region, including India. We serve Asia through two hubs, one of which is Singapore, while we cover North Asia and China from Hong Kong.
In recent years, there has been a flattening of growth there due to the Corona situation. Now that restrictions have been eased in the fight against the pandemic, we expect a strong boost. Asia is and will remain the growth engine of the global economy. That is why new assets are also being created there.
In Hong Kong, the Corona measures and the strong influence of the Chinese government, have led other banks to withdraw from the site. Do you feel comfortable swimming against the tide?
I confirmed it at the opening ceremony of our new Hong Kong site: We have no plans to move parts of the business to Singapore, as some of our competitors have done.
The promise of doing business in China from Hong Kong is enormous. But at the same time, the dispute between the People's Republic and the US is intensifying. Is Julius Baer not afraid of getting caught between the fronts?
We operate internationally. That means we have to carefully consider geopolitical developments. We examine very carefully what impact such shifts could have on our local business.
«In the dollar area, the rules of the game are those of the US. Period»
Based on our analyses, we position ourselves in the best possible way. For us, the focus is not on the question of withdrawing from a market, but on how to deal with the situation. Without question, we are always dependent on how Switzerland positions itself politically in such a bloc.
US sanctions against Chinese clients are a scenario that Swiss private banks are said to be playing out in so-called wargames. Is this also happening at Baer?
The task of the board of directors and the management of a private bank is to prepare for such scenarios. What would the employees have to face, what happens to our earnings, and what about loans are questions we can be prepared for even without knowing the future.
There is speculation Julius Baer might return to the US after pulling up stakes in the noughties. Is that now out of the question because of the expansion in Asia?
We will not be active in the US in the near future. The market is attractive, but very competitive and dominated by local big banks. It is no coincidence that no European institution is successful in asset management in the US.
The US has once again increased the pressure on Switzerland to take action against Russian bank clients. From the banks' point of view, will the only thing that remains, in the end, be to cave in again?
You have to face the realities. The entire Western financial industry is very heavily dependent on the dollar, simply because it is the world currency. And in the dollar area, the rules of the game are those of the US. Period.
Julius Baer counts sanctioned Russian persons among its clients, and these funds are frozen. Why doesn't the bank withdraw from this business altogether, as Vontobel recently did?
We have withdrawn locally from the Russian market by closing our local subsidiary. We are complying with all sanctions that apply to us.
«The ordered change in AT1 bonds when Credit Suisse was rescued was met with a lot of incomprehension»
But the majority of our client relationships with individuals with a Russian background are not currently subject to sanctions. We feel obligated to maintain a minimum level of service to these clients, within a framework currently permitted by regulations. But here, too, the conditions are constantly changing, and we are keeping a close eye on this.
The sanctions against Russian customers have also unsettled clientele from other emerging markets. How badly has the demise of Credit Suisse damaged the image of the banking industry?
I recently spoke with clients and employees in Brazil and Asia. In both places, the ordered conversion of AT1 bonds during the rescue of Credit Suisse was met with a great deal of incomprehension. The fact that the measures were enforced using emergency law caused even more uproar. This is perceived as contrary to Switzerland's claim to be a reliable constitutional state. This has left a dent in the perception of the financial center.
What did you do to counter these customers?
If you explain that the aim of the action was not just to rescue Credit Suisse, but the entire international financial system, this is very quickly understood by our clients. I would also like to emphasize the authorities have stuck to the basic principles of legal certainty and reliability in taking the measures they did.
They had to act quickly in a crisis to avert further damage and, let's not forget, the banking industry consists not only of UBS and Credit Suisse but of more than 230 independent institutions with widely differing risk profiles.
So it isn't all bad?
In my opinion, major damage to our image can be averted but requires an exchange with international customers and the investment community.
«The Swiss banks don't have to hide in this respect»
I would also like to see the government proactively explain the motives for the action and the corresponding consequences. And not only at home in Switzerland but also vis-à-vis other countries.
Doubts are setting in about Swiss neutrality and the demise of the country's second-largest bank. Is this the twilight of the offshore financial center?
No. I am rock-solidly convinced of the adaptability of Swiss banks. Switzerland is the most important offshore financial center and is holding its own very well in global competition, even in times that are not always easy.
But to keep it that way, we must uphold values such as legal certainty and reliability. All industries benefit from this, not just banks, and they are important values in both domestic and export businesses.
In the latter, we can contribute our experience of more than a century in wealth management, our professionalism, and our knowledge of what foreign private clients want and need. Swiss banks have nothing to hide in this respect.
But I think you'll agree that it's been easier and more carefree to run a Swiss private bank. How do you motivate yourself on a day-to-day basis for this difficult job?
My motivation is to preserve the legacy of around 130 years of Julius Baer and to build upon what's been achieved. I see myself as part of the organization and want to take it into the future for the benefit of our clients, employees, and shareholders.
I like the fact that we are a 'pure-play', focused on asset management. That makes it easier for everyone to understand where our strengths lie. I am proud to be the Chairman of this bank.
finews.asia once called you the secret star of Swiss banking. Perhaps the label applies again: In the rescue of Credit Suisse, UBS boss Sergio Ermotti is now fully in the spotlight. Why weren't you entrusted with the mega takeover?
(Laughs) You'll have to ask the UBS Board of Directors. But I wouldn't have been available either. I feel comfortable in my role as chairman of Julius Baer. I'm in the right place here.
As a former Credit Suisse executive with experience in trading and asset management experience, you have the tools and you know key people at UBS like Iqbal Khan to do so. At the stock exchange operator SIX, you initiated the takeover of Spanish competitor BME. Wouldn't the task have appealed to you?
At the moment, my life plan does not include taking over an operational function again. But there's no doubt such a task is fundamentally interesting. In my 26 years at Credit Suisse, I was involved in the takeover of Volksbank as a young employee. I know from that time that such a merger means a lot of work and it challenges you, and you learn an extraordinary amount in a short time.
For example, how to bring together the values and cultures of two organizations and create something new from them while looking ahead. But as I said, everything comes at the right time.
Regarding the takeover, UBS Chairman Colm Kelleher said that some Credit Suisse employees had to be put through a cultural filter. What does this statement trigger in you as a former employee? Is the culture at Credit Suisse really that toxic?
I haven't been part of the company for almost seven years. In that respect, I don't presume to be able to judge the current state of affairs. What distinguished Credit Suisse, something I experienced for 26 years, was an entrepreneurial culture. It was an important driver that enabled the bank to develop continuously for nearly 170 years.
Entrepreneurial is a positive term.
Of course. Entrepreneurial is, as I said, a good approach, but it has its limits, and banking is a highly regulated industry. If an institution takes a very entrepreneurial approach, the question quickly arises as to how many risks it accepts to pursue such a course. Banks are more exposed in this respect than other industries.
Julius Baer has historical and personal ties with Credit Suisse. Did it remember this when it had to look for a buyer starting last October? Were you also approached?
You understand that I can't comment on that.
Julius Baer CEO Philipp Rickenbacher recently told the press it benefited this year from client money flowing out of Credit Suisse. Will that be seen in the private bank's mid-May trimester figures?
We have seen some inflows in recent months. But, as Philipp Rickenbacher also explained, they haven't come from just one direction, nor have they been disproportionate.
«Money is often withdrawn online at the touch of a button»
It's important to take a differentiated view. At Credit Suisse, account deposits have been the main source of outflows in recent weeks. These liquid deposits are highly mobile and also only partially protected from bankruptcy decisions.
And where are these assets flowing to?
I was just in Asia. By all accounts, it was mainly large local players in Singapore that profited there. In Switzerland, we know that in such a situation, banks with state guarantees are the first to be considered.
Unlike the bank run on the Spar- und Leihkasse Thun more than 30 years ago, customers nowadays no longer gather in front of the branch, with the money often withdrawn online at the touch of a button. This happens within seconds and is the short-term part of the development.
There is a second part?
The much larger and much more important part of the business volume with individual customers is made up of securities portfolios and loans. The question now is whether this lion's share will also start to move.
What is your answer?
So far, we have seen very little of this. This kind of development takes longer and advisors are considering leaving the bank for the competition. Once they are ready for the move, they will try to take their clientele with them.
This results in a decision-making process on the customer side, and a change of institution has become more protracted in its implementation. The complete onboarding of very wealthy customers at a new location can take months.
Give outflows?
It is possible. It would only start now.
At Julius Baer's Annual General Meeting in April, you said you were aiming for one trillion francs in assets under management by 2030, double the current volume. Is this a reaction to the new UBS-Credit-Suisse construct?
Not at all. We have by no means geared our strategy to the new UBS-Credit Suisse. The one trillion francs figure was already formulated and presented in May 2022 as a horizon up to 2030. What we mean is that Julius Baer sees itself as a growth organization. But we don't want to grow on our own to reach one trillion in client assets.
But rather?
We need the scale to be able to offer our clients professional services. It takes as many clients and assets as possible in each of our markets, whether it's Switzerland, Asia, Europe, or Latin America, to attract the best people in advisory, investment, and risk management.
«When industry players want to spin off or sell something, we look at it»
Anyone who only manages one and a half billion francs per market has a hard time achieving the necessary quality. Size helps to increase the professionalism of the entire business. With more assets, we generate more cash flow, which we can reinvest in technology, and which we also use to offer our shareholders a reasonable return.
Size currently has a bad reputation in banking because of the new megabank UBS-Credit-Suisse.
Size is not good or bad per se. Julius Baer's size is associated with a different risk profile than that of UBS. We have a simple business model where we only do wealth management. We have no investment banking, no asset management, no retail or commercial business.
So even in the political discussion, you have to be careful not to lump all banks together. That bothers me personally. At the moment, people are always talking about «the banks». But what is meant is the one big bank.
As Chairman of the Board of Directors of Julius Baer, do you get involved in those discussions?
We do so primarily through the Association of Swiss Asset Management and Wealth Management Banks, which is chaired by our CEO Philipp Rickenbacher, and through the Swiss Bankers Association.
We are very much in favor of first making a clean sweep of what happened at Credit Suisse and how we arrived at the form of rescue that was ultimately applied. Only then should further steps be discussed.
Let's return to the topic of scale. The fact is Swiss private banking was able to attract relatively little new money in 2022 and is operating in a much more difficult environment. So where is the growth going to come from?
Our Plan A is to grow organically, as we have done in recent years. In addition, we are open to acquisitions should meaningful opportunities arise. If industry players want to spin off or sell something, we'll take a look at it. Our perspective is international, and not focused solely on Switzerland.
The Swiss Financial Market Supervisory Authority Finma temporarily banned Julius Baer from making major acquisitions. Now you have a free hand. What is the ideal target?
A transaction would have to make sense in terms of our business model. We want to buy a wealth manager that has the same core business as we do. Secondly, the culture must be at least close to ours, also in terms of how we deal with risks or the question of compensation.
Finally, an acquisition must benefit our shareholders. We won't do a transaction for the sake of a transaction.
A takeover of the Swiss competitor EFG International has been mentioned time and again. It's listed on the stock exchange and could bring Julius Baer a big step forward in terms of volume. When will you make your move?
I don't want to comment on other institutions. That rumor has been circulating for years.
Julius Baer is committed not only to growth but to profitable growth. You are aiming for a cost/income ratio of 64 percent by 2025. Does this target now become relative in light of the search for scale?
This value is a target against which we measure ourselves. In terms of the cost/income ratio, the target can be achieved in two ways. Either on the revenue side or on the cost side.
«We intend to recruit more relationship managers in our home market»
We are sticking to our savings target of 120 million Swiss francs by 2025, but if we generate more income through growth, we will have more room to maneuver on the cost side.
The annual savings of 40 million francs are also to be made in personnel. Can the Baer bankers breathe a sigh of relief?
My message is that we are working on both levers and have to keep costs under control even with good growth. If we succeed in increasing customer revenues, we have more opportunities to increase our cost line, as I mentioned.
Growth itself also costs. In this country, Julius Baer has launched an image campaign, which is certainly not free. Will this give momentum to the home market, after the institution has made little progress in recent years?
Our current campaign is part of our growth investments in all our focus markets, of which Switzerland is a very important one. We have at times struggled here because of being seen primarily as a private bank for an international clientele.
But we are a Swiss bank and we also want to serve wealthy individuals and families in Switzerland. We have a clear intention to grow in our home market and will hire more relationship managers to do so.
Romeo Lacher has been chairing the Board of Directors of the Julius Baer Group since 2019. He was a member of the SIX Group Board of Directors starting in 2008, chairing the board between 2016 to 2020. The 62-year-old finance professional, who was educated at the University of St. Gallen (HSG) and Harvard, spent a large part of his career at Credit Suisse. Upon leaving the bank in 2017, he was the operational head (COO) of the International Wealth Management (IWM) division. In addition to his mandate at Julius Baer, he serves as vice chairman of the Bank Council of the Swiss National Bank and on the Board of the Zurich Chamber of Commerce, among other positions.
