We have expanded to Japan, Thailand, India, and Australia, Olivier de Perregaux, CEO of LGT Private Banking, says in an interview with finews.asia. These are markets where classical private banking is not all that present, and places where LGT can offer added value with services and values such as continuity and long-term views, as well as the reputation of the Princely House, he adds.

Olivier de Perregaux, the LGT Group reported a decline in profit last year. Is that the first time?

No, it is something that can happen on occasion. At the same time, it is clear that the trend has been one of significant growth in business volume and profit over the last ten years. In that timespan, our group profit has almost trebled, along with volume and personnel numbers.

Is the recent result a cause for concern?

No – not at all. You have to keep the decline in profit in perspective. The fact is we did very well on an operational basis. That was particularly the case with the inflow of net new money. The higher levels of provisions and value adjustments were the reason for the decline.

Could you explain the value adjustments in more detail?

Much of it was due to a minority stake in a European fintech, whose valuation fell last year despite having a successful year.

«We want to make sure we provision enough in all cases»

The discount rate rose as a result of the increase in interest rates, something that generally cut valuations in the fintech sector.

Why did you need to make more provisions?

They relate to provisions for individual legal cases with clients. The specific ones differ, but we want to make sure that we provision enough in all cases. On top of that, we made writedowns on certain acquisitions that undertaken in recent years. In total, over time, that has required higher provisioning levels.

Besides the decline in profit, commission and services income fell slightly. Why was that?

They were weighed down by falling brokerage income and performance-dependent fees in the private equity business, which declined last year. Despite a continued positive performance in 2023, it mirrored a general flattening in the market after several very good years.

Personnel costs rose substantially. Was that because of all the ex-Credit Suisse bankers hired?

It was to a small extent although we continued to expand strongly in a more general sense – in IT, on the front, in support functions, and at our locations in Japan, Thailand, India, Australia as well as in Germany.

«Some Credit Suisse teams did in fact join us»

The drivers for that were business growth, continued digitalization, and a further expansion of our product and service offering. In total, we hired about 700 new employees last year, of which 140 were related to the takeover of the «abrdn» UK wealth management business, something that was also reflected in our compensation figures.

And in Switzerland?

Some Credit Suisse teams did in fact join us, something that was reported in the media in several instances. But we have been growing globally for years now and that includes hiring more relationship managers. Last but not least, our current relationship managers were successful, something that was evident in the levels of incentive-based compensation.

All in all, that led to a relatively high cost-income ratio of 74.2 percent. Isn't there an effort underway to get that ratio down?

We have been moving fairly constantly for years in a range between 70 and 75 percent, something that we feel is justifiable in the context of the pace of our investments. We remain open to making further acquisitions but it is getting increasingly difficult to find suitable targets.

Why?

The market has experienced a significant consolidation in the last 10 to 15 years. Of course, there are small banks with client assets of between 2 and 5 billion francs. But they don't really come into question for us given the lack of necessary critical mass, particularly in our larger locations.

Where does this drive to acquire at LGT come from?

There are two reasons. The first is the so-called market entry philosophy, which helps us enter new markets. In 2016, we took over Vestra in the UK where we didn't have a presence before. The same goes for the wealth manager Crestone at the end of 2021 in Australia.

«In Asia, several acquisitions helped us to build out the level of managed client assets»

The second reason is to participate in a consolidating market in a way that allows us to expand our platform. An example of that is UBS's business in Austria, which we took over in 2021, and that helped us expand our market share there. The takeover of «abrdn» falls into the same category as it helps us to increase our footprint in the UK. Before we only had a presence in London and Bristol, but we are now active in Edinburgh, Manchester, Leeds, and Birmingham.

In Asia, several acquisitions helped us to build out the level of managed client assets, which have risen from 26 billion in 2016 to 94 billion last year. Taking over ABN Amro's Asian business in 2016 was an important factor behind that growth.

We are in a second phase of growth in Asia. We have expanded to Japan, Thailand, India, and Australia after our original locations in Singapore and Hong Kong, where we have been present since 1986. To a greater extent, they are markets where classical private banking is not all that present, and places where we can offer added value with our services and values such as continuity and our long-term views, as well as the reputation of the Princely House.

Isn't LGT simply too small for a giant market such as India?

No. India is an interesting target market for us given the pool of ultra-high-net-worth and high-net-worth clients who have a strong interest in making international investments.

Our impact investment company Lightrock was already active on the Indian subcontinent, which helped us to build up a private banking business from 2019 onwards. 

«Today we employ about 250 people in India»

But then the pandemic happened and it also took time until we got all the necessary licenses from Indian authorities. That meant we were really only in a position to launch the business last summer. Today we employ about 250 people in India.

When compared with your competitors, your inflow of more than 20 billion francs can be seen as high. How is that number broken down?

About 10.6 billion francs is from the classical private banking business, with 7 billion francs from new European institutional clients. The remaining 4.3 billion francs was generated by the asset management business of LGT Capital Partners. Although acquisitions are important for growth, our numbers also show that organic growth from standing channels is almost more important.

«A bank owner knows what their balance sheet is worth and doesn't play around with it»

The reputation of the Princely House stands us in good stead, just as our expertise in alternative assets and sustainable investments does, something that the ruling family places an increasingly strong emphasis on. Recently, they committed about $2 billion of their wealth to investments aimed at accelerating the pace of decarbonization and reaching net zero in CO2 emissions per invested franc by 2050.

Could you experience a debacle such as that Julius Baer went through related to the Signa real estate empire founded by Austrian investor René Benko?

No – as we don't finance commercial property. Our credit business is broadly diversified and we limit ourselves to «boring» Lombard lending and very selected mortgages - but only for private clients. We are extremely prudent with our collateral.

We have to be slightly more careful with our balance sheet as a privately held financial institution. In other words, intrinsically, a bank owner knows what their balance sheet is worth and doesn't play around with it.

LGT expanded strongly in Germany last year. It is a market that has often proved difficult and not very lucrative for many Swiss banks in the past. What are you doing differently there?

Liechtenstein's banks have a better start position than Swiss institutions do given they are part of the European Economic Area (EEA). Besides, the private banking landscape is not as developed as it is here. There are fewer institutes per se, and many of the renowned houses are now in foreign hands.

«We grow in the places we find the right people»

Moreover, some are not private banks but they also offer corporate finance, commercial banking, or fund services. They aren't pure-play private banks. The regional Landesbanken also covers the small to medium size entrepreneurial segment. In that context, there is a place for LGT with its classical private banking offering.

LGT has opened several locations in a short space of time in Germany, from Hamburg to Cologne, Dusseldorf and Frankfurt am Main. Will you keep up the same tempo in the future?

You can develop as many strategies as you like but business expansion such as we are currently experiencing in Germany is often driven by opportunities. That means that we grow in the places we find the right people.

Fundamentally, we have our eyes set on Frankfurt and Munich, where our German hub is located, and we easily imagine an expansion there. We now employ more than 50 people in Germany in total.

You are also putting great stock in digitalization as a growth enabler. What do you have in store there?

We have a global digitalization strategy that aims at creating different innovation centers. They are currently located in Liechtenstein, Switzerland, Singapore and Barcelona.

It is actually something new. Individual teams work on specific digitalization themes at the different centers. They include an ESG cockpit for investments, a user-friendly private equity service platform or very simple, prosaic matters such as improving portfolio reporting for clients.

«We recruit global nomads»

We recruit locally, including global nomads who appreciate being able to work in different places around the world. It is also easier for us to find highly talented staff that way.

The unbroken march of artificial intelligence (AI) and its integration into finance forces us to have the necessary expertise while expanding on it constantly. The whole area has acquired a new order of importance since the introduction of ChatGPT, and it is something that continues to develop at a quickening pace. We have to stay on top of things.

Olivier de Perregaux, a Swiss citizen, completed his business studies at the University of St. Gallen and the Colegio de Espagna in Salamanca before becoming a strategy consultant at McKinsey in Zurich and New York and Zurich Insurance in Switzerland before joining the LGT Group as chief financial officer in 1999. He has been the CEO of LGT Private Banking since January 1, 2021, taking over the role from  Prinz Max von Liechtenstein.