Private Banking in Geneva
A Cluster Analysis
Group 1: Kahina El Hajji, Alexandra Megally, Laurel Nelson, Harith Soysa
Source OECD 2010
1
Agenda
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Introduction
Country Analysis
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Private Banking Cluster in Geneva
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Switzerland at a glance
Factor conditions of success
Swiss Financial Center
Legacy
Cluster Map
Diamond Model
Global Issues
Recommendations
2
Switzerland has no mineral resources and a restricted surface area.
Its wealth depends on foreign trade...
Map of Switzerland
Area
41285 km²
Population
over 7,785,800
GDP/ rate
US $ 500,26 billion- 3,10%
GDP/Capita
US $ 37 872
Median Age 41.7 years
Languages
French, Italian, Swiss-German
Composition of the Economy
250.0
Agriculture
Manufacturing
Services
200.0
4%
23%
73%
15%
1960
Imports of goods
Exports of goods
47%
39%
US Billion
2008
Trade Balance
Source OECD 2010
Area and Demographics
150.0
100.0
3
50.0
0.0
2001 2002 2003 2004 2005 2006 2007 2008
Swiss Economic Indicators
Gross Domestic Product (GDP) Billion
USD currents PPPs
Unemployment rate: total civilian
labor force %
350.0
5.0
300.0
4.0
250.0
3.0
2.0
150.0
1.0
100.0
0.0
50.0
2001 2002 2003 2004 2005 2006 2007 2008
0.0
2001 2002 2003 2004 2005 2006 2007 2008
Exchange rates CHF per USD
3.0
2.00
Inflation rate all items, Annual Growth
%
Source OECD 2010
200.0
2.5
1.50
2.0
1.00
1.5
0.50
1.0
4
0.5
0.00
2001 2002 2003 2004 2005 2006 2007 2008
0.0
2001
2002
2003
2004
2005
2006
2007
2008
Competitiveness of Switzerland
Global Competitiveness Report 2010-2011
• Switzerland has “an excellent capacity for innovation” and a “very
sophisticated business culture” – categories where it ranked 2nd
and 4th out of 139 countries
had “an excellent capacity for innovation” and a “very sophisticated
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Switzerland Analysis
Political conditions
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Stable government and neutrality
Divided into Federations, Cantons, Communes
Dynamic: the Referendum laws
Local laws are more powerful
Direct democracy
Bank secrecy and heritage
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Swiss Banking Act of 1934
Experience and heritage of several centuries make these institutes unique for providing tailormade financial service to wealthy customers.
Swiss financial center is perceived as a safe haven for money seeking home
High quality advice and operational conditions at the forefront of international private banking
Excellent specialist expertise that boosts confidence in the whole financial market
Monetary Policy
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The CHF is a minor currency but it is stable and independent from the Eurozone
The revised National Bank Act of 2004 stipulates that the SNB is to ensure the stability of the
financial system and the FINMA ensures an effective supervision of banks
6
Switzerland Analysis
Economy
• Exports of goods and services are extremely competitive
• More than 90% of goods and services are exported: watches,
chocolate and cheese,
• Mechanical and electrical engineering and chemicals together
account for over 50% of Swiss export revenues.
• Consultancy, insurance and tourism are also part of the export trade.
• Switzerland's main trading partners are European Union members.
(Germany).
• In 2009, 59.7% of exports went to EU countries, and 78% of the imports
came from EU states.
• Swiss economic policy is based on free trade, with low import duties and
virtually no import quotas - the only exception being for agricultural
products.
• Headquarters of major MCN, Nestlé ad 15 Swiss firms, including the
pharmaceutical giant Novartis (No. 160) featured on the “Fortune Global
500”
7
• It generates over 11% of Swiss GDP and represents 6% of Switzerland’s total
working population (banks, insurance companies and other financial
institutions) in 2009
• Switzerland’s financial center has three main hubs - Zurich, Geneva and Lugano.
• The key players in the Swiss financial center are the banks:
• Core businesses is asset management
• The 3rd largest financial market after the US and the UK, but ranks first in Wealth
Management
• The volume of assets under management is about 10% of worldwide AuM
Share of assets under management in international
private banking end of 2007
Switzerland
27%
United Kingdom
24%
Luxembourg
14%
Singapore
7%
United States
7%
Hong Kong
3%
Others
6%
Source: Boston Consulting Group 2007
The Swiss financial center is a central pillar of the
Swiss economy
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Private banking is a centuries-long tradition in Switzerland. The
first recorded private bank dates back to the 17th century..
1387
14th & 15th Centuries
Residents of Geneva allowed to
lend money against interest
Traders became
bankers
17th Century
19th Century
Geneva’s bankers
financed Dutch West
Indies Company and
Royal Bank of England
Geneva’s bankers
financed railway
companies and issued
public loans
1857
Oldest stock exchange
in Switzerland opens in
Geneva
20th Century
Banks moved towards
asset management
Pictet Asset Management, Ltd
Jacques Necker, Geneva
banker (1732 – 1804)
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In Switzerland, the term "private banker" refers to a specific
definition in the Swiss Banking Law
Henri Hentsch
Thierry Lombard
Christophe Hentsch
The two founders and their heirs – current
managing partners of Lombard Odier
Specific status of “private banker” – justified by the presence within the bank of
at least one partner with unlimited liability for the bank's commitments.
• If the bank goes bankrupt, the partner with unlimited liability could lose their entire private fortune.
The expression “private banker” evokes images of free enterprise, independent
personalities, long-standing tradition, discretion, an open attitude and above all,
the mastery of a profession: asset management and securities trading.
• It is not easy to describe the characteristics of these multifaceted personalities who are conservative
yet progressive, steeped in tradition yet unconventional.
Source: swissprivatebankers.com
Jean Gédéon Lombard
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Geneva Private Banking Cluster Map
Business Regulation
Local Association
Bank of International Settlements
1934 Banking Secrecy Laws
“Bankgeheimnis”
“Finanzplatz Genf”,
Groupement des Banquiers Privés
Genevois, FINMA
Geneva Private Banking
5 leading Geneva-based private banks Bordier & Cie,
Lombard Odier Darier Hentsch & Cie, Mirabaud &
Cie, Pictet & Cie
Educational, Transfer of Resources
FAME, HEI, 26 Finance and Technology Companies to
train advances banking specialist
Institute for Banking at the Hoschschule St,Gallen
Financial Services
Traditional service and
sophisticated investment
Mutual funds, Hedge Funds,
Private Equity, Venture
Capital, Insurance, Trade flows
Luxury goods: Breguet, Patek
Philippe, Richemont
Exclusive Tourism
High end Sports
Cluster of Private Banks in Zurich and Basel
Swiss Insurance Industry
Strong social/family ties
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Factor Conditions
• General Factors
• Location at the middle of Europe as an advantage in terms of reducing
travel cost for clients
• Proximity to famous tourist destinations in the Alps
• Stable political system and neutrality
• Specialized factors
• Highly-skilled personal service, fluent in languages, well-versed in dealing
with different cultures, traditionally risk-averse and respecting property
• Advanced training and apprenticeship programs in banking
• Legal system and business regulation: Swiss Bankgeheimnis (banking
secrets) to attract investors wishing to avoid taxes at home
• Tax evasion not considered as a crime in Swiss law
• Legislative environment allowed emergence of the “universal banking” system
• Initially under-developed Swiss telecom communication infrastructure led the
industry to develop its own telecom infrastructure which later seems to have
become an advantage on its own
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Sophisticated Demand and Strong Links to Other Clusters
• Sophisticated Demand as Advantage
• Domestic and international private banking clients are very demanding
and prefer low risks at the price of low returns
• However, demands from foreign institutional investors who seek higher
returns were less in line with Swiss locals resulting in Swiss demand
conditions to be slight disadvantage for this segment
• Benefits from highly specialized and expertise banking advice
• Strong links to other greater Swiss banking clusters
• Swiss insurance industry
• 70% of their global premium income is generated overseas
• Swiss insurance companies have increasingly specialized in re-insurance, i.e. where
an insurer insures other insurers, making Switzerland the fourth largest re-insurer
in the world.
• Swiss financial center is also a major international force in currency
trading, commodity trading and the management of funds of hedge
funds.
• Competitive Swiss tourism industry feeds customers to Swiss private
banking services
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Context for Strategy & Rivalry
• Rivalry
• With the evolution of the banking market, private bankers are facing ever stiffer
competition from the major banks, which now offer similar services.
• Cluster’s Economy is open to Foreign Direct Investment FDI
• Strong presence of Foreign banks in Geneva (60 foreign-owned banks out of 140)
Private
Bankers, 14
Others Banking
Instutions, 9
Cantonal
Banks, 24
• Cooperation
Big Banks, 2
Branches of
Foreign
banks, 33
Regional Banks
and saving
Banks, 70
Stock Exchange
Banks, 123
Foreign
Controlled
banks, 49
• Firms cooperate and invest
jointly to upgrade the cluster in
Geneva
• Finazplatz Genf Foundation,
• International Center for FAME
• The leading private banks in
Geneva have been owned by
the same families for hundreds
of years. While being strong
competitors, these families
have strong social ties and
know each other well.
Source: SNB, Banks in Switzerland, 2006–2009.
• Vigorous competition among local companies drives innovation
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Global Issues : The 2008 global financial and economic
crisis significantly shaped the last three years
The2008 Global
Financial Crisis
But over the last 10
Years
• With its long tradition
of banking and
finance, Switzerland
coped better than
many other financial
centers, thanks to:
• extreme
heterogeneity of the
Swiss banking
industry
• the stability of the
Swiss franc
• still a very attractive
location for highly
qualified financial
experts to work
• Swiss banking industry has
consolidated from 372
institutions down to 325.
• International competition
for assets has stiffened
correspondingly.
• investors are seeking
greater geographical
diversification in their
portfolios.
• the rapid structural
changes in financial
services mean that a
constant review and
optimization of
government regulation
and supervisory
instruments is required.
Tax Regulations
• by adopting the OECD
article 26 standard on
information exchange in
tax matters and entering
into fresh negotiations
about a final withholding
tax, the Swiss financial
center took a key step
forward and has been
efficiently implemented.
• Some argue that
Switzerland will not be as
attractive as it used to be
and investors may look
for new financial centers
overseas.
Union Bank of
Switzerland
• involved in so
many
international
issues
• Subprime crisis
• Madoff case
• Tax evasion with
the US residents
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Recommendation
At the National Level
For the Cluster
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Harmonize the policies of the Cantons •
to avoid overlapping and competitions
between them
Government should increase the
presence of Foreign Banks which is a
source of growth
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Work on the centralized process to •
collect tax
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Develop a culture of innovation
through the universities and schools to
retain talent
Raise the Bank Regulatory Standard to
avoid terrorist funds or widespread tax
fraud
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Attract innovative financial institutions
such as hedge funds or private equity
firms that are looking for new financial
places
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Opportunity to attract home
manufacturing: most of the products
are produced in Europe
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Lower its labor barrier
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Create a center of research for the
finance industry
Develop the other clusters such as
tourism to promote Green Tourism
The Swiss federal government should actively pursue a national Cluster
The Swiss federal government should actively pursue a national cluster policy
policy
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Questions & Answers
Thank you for your attention
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Source OECD 2010
Back Up slide
18
Trade
• more than 90% of goods and services are exported: watches,
chocolate and cheese,
• however mechanical and electrical engineering and chemicals
together account for over 50% of Swiss export revenues.
• Consultancy, insurance and tourism are also part of the export
trade.
• Switzerland's main trading partners are European Union
members. (Germany).
Source OECD 2010
• Exports of goods and services are extremely competitive
• In 2009, 59.7% of exports went to EU countries, and 78% of the
imports came from EU states.
• Swiss economic policy has always been based on free trade,
with low import duties and virtually no import quotas - the
only exception being for agricultural produce.
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• Companies
• Nestlé headquarters in Vevey, on Lake Geneva© Nestlé S.A.
• Most businesses are small or medium-sized. According to the 2008
business census, more than 99% of enterprises had fewer than 250 fulltime workers, employing about two-thirds of the total work force.
• The largest company is Nestlé, the biggest food company in the world. It
has around 278,000 employees, about 97% of them outside Switzerland
(2009).
• In 2010, 15 Swiss firms, including the pharmaceutical giant Novartis (No.
160) featured on the “Fortune Global 500”, an annual ranking of the 500
most powerful corporations which is compiled by the eponymous
American business magazine.
• Many companies are still in the hands of families who founded them.
However, a survey conducted in 2002 showed the impact of
globalisation on large firms: it found 40% of board members and 26% of
managers were non-Swiss, mostly from Germany, the UK and France.
However, there were still few foreign managers in medium and small
businesses.
Source OECD 2010
Key Sectors
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Source OECD 2010
• The second most important players are insurers. Close to 70%
of their global premium income is generated overseas,
indicating a high degree of internationalisation. Swiss
insurance companies have increasingly specialised in reinsurance, i.e. where an insurer insures other insurers, making
Switzerland the fourth largest re-insurer in the world.
• The Swiss financial centre is also a major international force in
currency trading, commodity trading and the management of
funds of hedge funds. However, in other financial services,
such as the funds business, institutional asset management,
investment banking, as well as commerce and corporate
banking, it continues to play only a minor role.
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Source OECD 2010