Neuflize no longer just about ancient history

A corporate and investment banker who came through the ranks of ABN Amro, Philippe Vayssettes, chairman of the managing board at Neuflize OBC, does not strictly belong to the tradition of the family-led French wealth management office, nestled in the shadow of the Arc de Triomphe in Paris.

Yet breaking his freshly-baked croissant at breakfast in the Neuflize headquarters on the Avenue Hoche, he speaks with the conviction of a converted believer.

Dating back to 1667 to the original name of Banque André, the bank passed through various incarnations under the influence of major French industrial families such as Schlumberger and Courvoisier, until as Banque NSM, it was purchased by ABN in 1977, long before the Dutch bank’s eventual merger with Amro. Banque OBC, another  family owned group, was purchased in 1994.

“I like to say we have not just been through the financial crisis, but a real revolution and real wars,” says Mr Vayssettes about the bank of Protestant heritage, which manages €240bn for a client-base of predominantly French families.

“This means we have the ability to help our clients with more serenity, rather than emphasising any nervousness,” he says.

Major competitors are burdened by the ‘silo’ mentality of their organisation, which makes it difficult to bring different solutions together.  “I know this well from ABN Amro,” admits Mr Vayssettes.

“Most international banks have a silo structure, which makes real co-operation between different lines of business very difficult. There is life in PowerPoint presentations and there is real life. This co-operation does not exist in real life.”

Central to much of the relationship between Neuflize and its clients is the role of M&A bankers. “Our bankers are perfectly capable of advising clients not to sell their business, just as our structured finance people will tell people the time may not be right for an LBO [leveraged buyout],” he says.

The idea is that if the banker sticks with the client for the long-run, there is an understanding or confidence that by the time the customer reaches 65, they are likely to sell their business and generate fee-paying assets to be managed by Neuflize.

“Sometimes there are family groups who over a period of 10 years do not give us one dime to manage,” says Mr Vayssettes, with what sounds like a hint of regret.

“It is not always in the interest of clients to do something which gives us fees or margins. But we take a long-term view. With some families, we have been building relationships over five generations. It’s not always easy, but this is our role.”

Clients are sought across industries including film-making, healthcare, international real estate and asset management.

“The paradox is that sometimes we make an LBO and end up managing the wealth of our competitors. But we can be trusted to do this in confidence,” he adds with a smile.

The needs of these clients, typically growing up and working and living in France, are very different to those of the types of clients sourced from Asia and indeed other parts of Europe by global banks. So while there is guidance from the investment committee at ABN Amro, the parent bank does not interfere in asset allocation.

“The large French industrial Protestant families are in our history and in our blood,” says Mr Vayssettes. “ABN respects and understands why this history brings a lot of value to our proposition.”

Other banks such as Credit Suisse, BNP Paribas and HSBC have “swallowed” brands that have disappeared completely, he says. “ABN has kept them intact.” Family members even remain on the supervisory board.

But the relationship has not always been so straightforward.

“The old, pre-crisis ABN Amro only accepted our model of family-led asset management reluctantly,” says Mr Vayssettes, who also sits on the Dutch bank’s private banking board, although this attitude has improved dramatically since the crisis. There is also acknowledgement that the slightly more aggressive edge ABN Amro has injected into the placid Neuflize culture has helped awaken what was once regarded as a “sleeping beauty”.

“Until 2007, we had the best brand, but without any commercial awareness,” says Mr Vayssettes, lamenting almost a decade of outflows, while markets were growing at 7 per cent annually.

Things got even worse in the summer of 2008, with Belgian bank Fortis about to collapse and Neuflize clients left “totally puzzled by events”.

“We were preparing for integration with them from 2007, but by July it became clear Fortis would not survive the crisis.”

Clients were coming into the offices each day and making apologies as they withdrew large sums of cash. “They were saying ‘we love you, but we are sorry, we must put some money with HSBC or BNP Paribas,’” recalls Mr Vayssettes.

Yet by the third quarter of 2008, the Neuflize team began doing the rounds of the clientele and money started trickling back.

And more recently, clients have started defecting from competitors. “Our brand has never been so strong,” he reflects. “But a significant number of our competitors are in real trouble, both in France and Switzerland, with a strong decrease in margins and probes from the authorities. A lot of banks are facing hell, so we can get part of their client base and increase our market share.”

Since 2009, growth has resumed once more, apart from a torrid time during 2012, when €1.2bn flowed out, largely due to French tax rises. He is not alone among French banks in his criticism of the authorities in Paris for highly punitive taxes on French wealth, with neighbouring Luxembourg and Belgium long-term beneficiaries of the system.

“In Belgium you are not seen as a crook because you are rich,” he says. “Our clients are fed up of this typically French mindset, increasingly so with this new government. Instead of building their company in France, entrepreneurs  will go somewhere else.”

While French clients did not want to invest during 2012, “life is now slowly resuming,” he says. “With low interest rates and the need to invest to offset tax and 2 per cent inflation, the affluent client needs a gross return from capital of at least 7 or 8 per cent in order to preserve their wealth.”

This has meant increasing portfolio risk to unprecedented levels for many conservative members of the Neuflize client base, more used to life insurance contracts.

These days, they need to mix in some high yield bonds, as well as taking advantage of sharp rallies in various stockmarkets such as the US, while making longer-term allocations to alternatives such as private equity and forestry.

Most clients have lost faith with the traditional asset management industry after a series of crises and mismanagement scandals and feel more comfortable investing in real assets and private equity, which Mr Vayssettes believes enjoys more transparency, visibility and less volatility.

“Our entrepreneurs are ready to lose money, but they want to know why they have made a mistake,” he says. “With the financial industry, nobody understands why the money has been lost, which explains the loss of trust. We must rebuild this.” 

A purely French story

Key to the success of Neuflize has been its regional penetration and the battle for hearts and minds of entrepreneurs deep in the French industrial regions. The bank has 11 wealth management centres in cities including Lyon, Marseille, Nice, Strasbourg and Toulouse, in addition to the Paris headquarters.

Each year, Neuflize’s key regional lieutenants call together their key contacts, business prospects and local dignitaries to attend showcase dinners.

One rival banker and observer of Neuflize describes “le dîner des presidents” held at the end of May in the southern City of Lyon, attended by 100 entrepreneurs and local officials. Similar gatherings will be held in Toulose and Marseille later this year.

“To get so many top people away from running their companies for an evening in one place at one time takes talent and trust,” says the banker. “Philippe has put his best guys to run the regions.”

The only question is whether the French economy can continue to maintain this private banking success story, which has already overcome many tough hurdles in its long history.

Neuflize management admits there has been little effort to attract France’s wealthy expatriate community, such as the Chinese who have taken over many businesses in Paris, although Dutch customers in France are being increasingly targeted.

“Neuflize is the best established franchise of all the private banks in both Paris and the regions, but it has its limitations,” says the rival banker.

“There is very little international exposure. This is purely a French story.”

Financial innovation at Banque Neuflize OBC:

• 1667: creation of Banque André
• 1720: elaboration of the first principles of responsible and prudent management with the refusal to invest in ship ownership or speculate in grain and colonial foodstuffs
• 1800: participation in the founding of the Banque de France
• 1816: contribution to the rejuvenation of insurance in France with the founding of the Compagnie Commerciale d’Assurance
• 1920: development of collective investment instruments foreshadowing the open-ended investment companies (SICAVs) which gained widespread acceptance many years later. The Management Account (collective investment product with half-yearly profits divided up among the principals in proportion to their rights) and the Property Management Company (managing a diversified portfolio of property stocks) came into being in 1925 and 1928 respectively
• 1920: creation of employee savings. The Bank’s personnel received a share of its profits
• 1948: setting up of a subsidiary providing computer and parabanking services
• 1950: creation of employee shareholding. The Works Council was allocated a portion of the Bank’s capital with bare ownership, the personnel being the beneficial owners. Furthermore, employees were represented on the Board of Directors and had voting rights
• 1977: Banque NSM is purchased by ABN
• 1990: in partnership with Axa, founding of Neuflize Vie, the first life insurance company in France dedicated to high-end clients
• 1994: Banque OBC is purchased by ABN Amro
• 1998: founding of A.A.A. (ABN AMRO Advisors), a subsidiary of Banque NSM, which became the European benchmark in external fund selection
• 2006: merger of Banque NSM and Banque OBC to create Banque Neuflize OBC
• 2009: stake in Babyloan, France’s leading organisation dedicated to online solidarity-based microcredit