Asian expansion spearheads UBP’s global ambitions

Michel Longhini, chief executive of private banking at Swiss bank Union Bancaire Privée (UBP), looks relaxed and pleased with himself, after a long day of meeting clients at Singapore’s iconic Fullerton hotel. The acquisition of Coutts’ Asian business has been a challenging one for him, but he has done business at this level before in a previous incarnation as head of Asian business at BNP Paribas, so he will not get too excited.

Let’s not forget Coutts’ Swiss, Monaco and Dubai business has also added close to SFr13.5bn ($14bn) – “a higher figure than expected” – to his coffers. But prospects for Asian business are even brighter says Mr Longhini. An 11 per cent surge in new money during 2015, including the latest acqusition, have boosted UBP’s assets under management to SFr110bn.

So what have the 50 ex-Coutts clients he has recently met been saying to him during his Asian visit? “They want to know which kind of bank this is,” he muses, before talking about the “pure play” nature of UBP, and a balance sheet that is “one of the best in the business”. 

Clients, he says, “want us to guarantee we have what they are used to, so that they don’t need to consider the transfer as a disruption.”

Coutts had $14bn in Asian-sourced assets under management at the end of 2015 and he intents to keep a “good portion of this” with the bank, as well as the relationship managers who service it.

Coutts had an important presence in Hong Kong and Singapore, which will augment UBP’s growing asset management footprint in Shanghai and Taiwan. “There are many places where UBP was not really on the map in 2010,” he says. “But now we are part of the picture.”

Swiss banks, including his major competitors UBS and Credit Suisse, have a good track record in Asia, he believes, and are still ahead of many regional rivals in terms of products and services.

“A lot of Asian local banks are starting to get serious, building new platforms for private clients,” says Mr Longhini. “Their strategy is good, but it is relatively new.”

Global banks, on the other hand, are at a crossroads, he claims, with many emerging from the crisis to reconsider whether wealth management should form a core part of their offer. Société Générale, ING and now RBS (owner of the Coutts franchise) have all pulled out of Asia as a result, he says. 

“It is difficult to consider some of these institutions as global private banks if they are starting to exit some key segments of the market,” reflects Mr Longhini.

But most Swiss institutions have refocused on private banking, with a strong commitment to Asia, he says. 

The changing environment of lower margins and higher operating costs, tax transparency, exchange of information and US Fatca regulations will leave Swiss banks severely challenged for the next 10 years, he believes. Like many Swiss banks, Mr Longhini’s institution has made a “settlement” with the US Department of Justice’s Swiss Bank Program. In UBP’s case this amounted to $188m.

“Our starting point is portfolio management, asset allocation and investment in products,” he says. 

“But we also have a significant book of mortgage loans linked to private banking, with real estate becoming an increasingly important asset class. This is a large part of the picture now. Some banks are also trying to leverage investment banking platforms for small businesses – some more and some less successfully,” adds Mr Longhini with a smile.

“I have not always seen the capacity for such platforms to be good in all areas at all times. We as a private bank are keener to find for the client the best partners for doing an M&A deal. It is not a really negative point for us if we don’t have an investment banking platform.”

Clearly, Mr Longhini is building a case for having asset management at the core of his expansion strategy. Yet he does not hide from the fact that he still has the legacy of the Madoff fraud to shake off, with UBP’s clients hit hard, though perhaps not as hard as some other wealth management operations. The exposure of UBP clients to Madoff strategies was close to $1bn.

“This is an old story now, but we were the only bank to make a settlement with the trustees,” he says, referring to UBP’s $500m payment to resolve the claim. “Those clients who had Madoff exposure through UBP are very thankful to us.”

And what happened to those employees, working in UBP’s famed fund selection unit, responsible for choosing the investments and doing due diligence on them? 

“Most of the people in the fund selection team have moved on,” he says. “The whole process has been renewed. Operational due diligence has now taken on different criteria.”

The UBP brand, he claims, has improved “more than significantly” since those dark days. 

“Brand awareness has returned due to a significant series of acquisitions, showing commitment to private banking. This is a total turnaround compared to five or six years ago,” says Mr Longhini, referring to his buyout of the Lloyds and ABN Amro Swiss private banking franchises. 

“We have doubled the size of the bank in the last five years and that speaks for itself,” he says, adding that outsiders have seen the quality of people who joined the bank in previous acquisitions, with more relationship managers now inspired to join.

“Our approach gives people more of an opportunity to develop than they had with their previous employers,” he suggests, with a slight hint of mischief.

Good performance of flagship asset management products has further helped this improved perception, believes Mr Longhini, as has the decision to reshape the business after the bank haemorrhaged hedge fund money in 2008.

“Our decision was to rebuild the asset base of the bank by making it more of a balanced business, with private banking at the core,” he says. 

Size and operating capacity will be a major factor determining future success, he believes. “You need to be in multiple jurisdictions with strong risk management and good profitability. Most Swiss banks still have less than SFr10bn in assets, which is why consolidation is likely to continue.”

Experts on Swiss banking are broadly supportive of UBP’s efforts, placing it alongside names such as Julius Baer and Safra Sarasin, which are also playing a major consolidation role.

“UBP is one of the few Swiss banks that have embarked on a programme of acquisitions,” says Shelby du Pasquier, co-head of the banking and finance group at Geneva law firm Lenz & Staehelin. “Size and economies of scale have become of increasing importance in the new environment of international transparency and tax conformity.”

Acquisitions at “fair prices” have allowed UBP to rebuild to its former pre-Madoff, pre-financial crisis size, with the bank having “navigated the storms well and retained client trust,” says Zurich based M&A consultant Ray Soudah of Millenium Associates. Mr Longhini’s future challenge lies in reducing excessive costs “of the relationship managers which the industry as a whole is overpaying these days”.