UBP moves onwards and upwards after Madoff fallout

Michel Longhini, head of private banking at family-owned Geneva institution Union Bancaire Privée, smiles ruefully as he chats after hours in his HQ above the Rue du Rhône, the city’s prime shopping street nestled behind the iconic lake’s southern shore.

The official line is that he was recruited from French universal bank BNP Paribas in September 2010, with more than 20 years’ experience in wealth management, to reinforce UBP’s growth and development strategy, particularly in relation to the Asia-Pacific region.

But in reality Mr Longhini’s expertise was needed to help rebuild the business following UBP’s well-documented problems related to hedge fund due diligence and outflows.

Today, assets managed on behalf of private clients stand at SFr80bn (€66bn), still substantially short of the SFr130bn high recorded in 2007 before Bernard Madoff, helped by the global economic crisis, wreaked havoc through the Swiss wealth management arena.

Mr Longhini admits the bank previously benefited from “rocket growth” fuelled by high octane hedge funds, and then suffered in equal measure as this asset class was at least temporarily discredited.

However, UBP has been boosted by acquisitions over the past two years, adding client assets of SFr15bn. Firstly it acquired the Swiss operations of ABN Amro and Santander and more recently that of the Paris-based fund of hedge funds Nexar Capital, which also has offices in London, Jersey and New York.

“Usually when you do acquisitions, you plan to lose part of the assets from the institution you are purchasing,” says Mr Longhini. But in these cases, clients of the other banks have decided to stay loyal to UBP, even entrusting more money to their new advisers.

A transforming Switzerland, moving away from shady money to a transparent model based on efficient management of client portfolios provides the background to UBP’s gradual resurgence. There is no doubt in his mind that Swiss banking must now differentiate itself in terms of providing returns for clients, rather than hiding their money from prying eyes.

The key selling-point, says Mr Longhini, is UBP’s portfolio management capability, established by the bank’s founder Edgar de Picciotto in 1969. “This does not compare with the traditional 200-year-old Swiss private bank of the white glove tradition,” he says, still smiling. “The driver at UBP is to bring added value performance. For us, that is the basis of what private banking should be.”

He sees imitation as the sincerest form of flattery in that another youthful Geneva institution, Banque Syz, was established along a similar model, specialising in alternative investments, during the 1990s. “A few banks have tried to copy this model, which is a good thing. But the difficulty for some of them is that they started late compared to UBP,” he says.

Although it is common perception that UBP suffered more than any other Swiss bank during the Madoff-led Great Escape from hedge funds, he is adamant that his bank has recovered much faster than competitors. “Some competitors never reached a critical size,” he reflects. “So that when the hedge funds world went down, it may have been painful for UBP, but it was even more painful for many others.”

Private clients, many of whom have already suffered from several crises of confidence, are being driven to revisit alternative investments, he believes, because there is no other source to add value to their portfolios.

“Even in this age of low interest rates and low growth, there is value to be found in lots of hedge fund managers,” says Mr Longhini. The quality of the hedge fund universe has improved in recent years, he says, with many of the old guard retiring in a generational change, which sees a better qualified and experienced new breed of manager stepping in.

UBP has also redrawn and beefed up its due diligence criteria, although Mr Longhini believes the bank was unfairly portrayed in its flirtation with US fraudster Mr Madoff.

The exposure of UBP to Madoff strategies was a maximum of $1bn in a $60bn (€46bn) portfolio of hedge funds, much less than some global names. Yet because UBP was respected by private clients as a hedge fund specialist, they were less forgiving to the Swiss house than they were to the bulge-bracket players. This meant they quickly withdrew funds.

Today’s operational risk measures in particular are much stronger, he says, with manager selection teams “dramatically reinforced” since the purchase of Nexar.

UBP certainly stood behind those clients who suffered at Mr Madoff’s hands. In 2009, the bank offered to compensate any client who had lost money, paying them 50 per cent of their initial investments with Madoff. UBP was also the first bank to settle with Madoff’s Trustee, agreeing to pay $500m to resolve the claim.

Now that the episode is behind the bank, Mr Longhini aims to deepen UBP’s footprint in further-flung territories, Asia in particular. Hong Kong and Singapore have been the initial growth targets, together with Taiwan, through a local partnership. UBP currently employs 70 staff across the Asian region, including operations in Tokyo.

“Switzerland is still stronger than Singapore,” he says. “But a significant portion of new wealth is coming from Asia, and Singapore is the natural regional private banking centre to receive it and manage it. I’m not sure if it will take over from Switzerland too quickly, but the growth is there.”