“Our focus is not on pleasing shareholders”

Interview

At the end of June, Renaud de Planta will stand down as Senior Partner of Pictet, Switzerland's largest private bank. After 26 years at the Geneva-based firm, his departure will mark the end of an era.

Mr de Planta spearheaded the bank's growth by building up its business with institutional clients such as pension funds. Thanks to these efforts, Pictet is also now Switzerland's second largest financial firm behind UBS, with around CHF 700 billion in assets under management.

Renaud de Planta welcomes us at Zurich's prestigious Leuenhof on Bahnhofstrasse, the bank's lavishly renovated offices in the city. The building underscores Pictet's ambition to continue to attract the richest of the rich.

Mr de Planta, you are only 60 years of age and stepping down from the most coveted job in the Swiss financial centre. Why?

I've been in the industry for 37 years now, including 26 years as Managing Partner of Pictet. It has been quite a journey and I've had a great time, but the pressure is constant. Day-to-day business takes up an enormous amount of energy, leaving little time for other endeavours. I'm looking forward to having more time to reflect and focus on other life goals.

You will soon be joining the Bank Council of the Swiss National Bank (SNB). What else will you be doing alongside that?

I will be joining the Pictet Group's Board of Directors, engaging with the Pictet Group Foundation and will also continue to be active as an investor. My focus will be mainly on small companies, including those on the periphery of the financial industry. I will also express my opinions on economic policy issues more freely than I can today.

What drew you to Pictet? You took on responsibility at UBS early on and could have made a career there too.

I had a great job at UBS, but in a listed company you are bound by structures that are beyond your control. The partners at Pictet offered me the opportunity to build up the asset management business, including the fund business. In a way, I was my own boss. That freedom was a big pull factor, and I have never regretted it.

What specific problems would Pictet encounter as a listed company?

A new CEO could be brought in overnight to take the helm. They would be taking over a Group they do not know and that operates in a financial centre they are unfamiliar with. If it all went wrong, they would be ousted within two years and would not have to shoulder the consequences. Things are different at Pictet. We are able to think and act for the long term.

Does that not make management risk-averse?

Quite the opposite. In Japan, for example, we made losses for a long time after we entered the market in the 1980s. Many of our competitors opted to leave at the time, but we decided to stay. Regulations changed in the late 1990s and local competitors weakened. The Japanese suddenly became very interested in foreign asset managers. Today, we rank among the top four foreign fund firms in Japan.

So,  do you believe that UBS should also be run based on a partnership model?

Some large American banks were established as partnerships. They were more stable then than they are today. However, UBS's capital requirements exceed what is feasible for a partnership. It took us two hundred years to build up equity. However, the equitable distribution of profits and losses among partners greatly enhances stability and is the best approach for clients. Our focus is not on pleasing shareholders with short-term profits.

Wouldn’t other banks also be able to create this symmetry if they adopted simpler and more transparent remuneration models?

Every step in this direction is to be welcomed. But you will never achieve the same alignment of interests. There is now talk about introducing clawbacks over a span of three or five years, reclaiming managers' remuneration if a bank underperforms. But problems tend to develop gradually over many years before they turn into a crisis.

So you do not believe that clawbacks would work?

They would help, but the dynamics will never be the same as within a partnership. Today, I live with the consequences of decisions that I supported 26 years ago. That is almost impossible to replicate in a listed company.

And yet, Pictet like other Geneva banks, has abolished unlimited liability for its partners.

The lion's share of our savings remain invested in the Group's capital. If anything goes wrong, we stand to lose everything. Nothing has changed in this respect, and the same is true for our culture. This step means there is a clear separation between the holding company and the operating companies. Compare this with the complicated structure of the former Credit Suisse (CS); with a parent company and a holding company and hundreds of subsidiaries whose roles were intertwined.

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Pictet was recently fined USD 123 million for aiding and abetting tax evasion by US clients; ultimately you and the other partners are footing the bill. How do you look back on this time?

At the time, many Swiss banks did not realise that they had as many or any US clients at all, because of dual citizens or clients with green cards who are considered US persons. We established a subsidiary for US clients early on in 2007. This subsidiary is registered in the US and ensures transparency with the US authorities. Before that, we never had a US desk. When the tax issue arose, we cooperated immediately and extensively with the US Department of Justice.

What did this mean for Swiss wealth management?

2008 and 2009 marked a turning point in terms of banking secrecy. Contrary to many sceptics, the Swiss financial centre has adapted. The CS crisis has weakened it in the short term, but our resilience will shine through in the longer term and we will emerge even stronger as a financial centre. In addition to being neutral, Switzerland has low national debt and stable institutions. This is also worth bearing in mind when you look at what is happening and is likely to happen beyond our borders.

What developments abroad are you referring to specifically?

Other financial centres around the world are facing turbulence due to geopolitical tensions or unsustainable levels of national debt. This is likely to lead to a race to devalue those currencies and probably to a restructuring of government debt. In such a scenario, Switzerland will be viewed even more as a haven of stability than it already is.

Financial centres such as Dubai and Singapore benefited greatly from the CS crisis, though. What does Switzerland have that Singapore cannot offer?

You cannot put the three financial centres in one basket. Singapore has experienced significant growth and recently further strengthened its position compared to Switzerland, mainly due to an influx of clients from Hong Kong. This has less to do with CS. That is why we also have a strong presence in Singapore, with 300 of our close to 600 employees in East Asia. But several financial centres can exist alongside one another. Banking in Singapore is easy for Asian clients, less so for European ones. At the same, we have more people from East Asia interested in opening an account in Switzerland than ever before.

You were a member of the Banking Stability Expert Group in the wake of the CS collapse. Where do you see the greatest need for reform?

We addressed four topics in our report, namely the need to: strengthen FINMA, enhance crisis management at federal level, improve the quality of capital and ensure emergency liquidity. So far, not much has happened in terms of emergency liquidity, but the SNB has a project to address this point. The debate on the quality of capital is now underway.

Pictet is testimony to the fact that it is possible to operate profitably even with a high equity ratio. UBS boss Sergio Ermotti, on the other hand, has warned against excessive capital requirements.

We have one of the highest capital ratios in the industry and also use this argument when we speak to our clients. It is another reason why clients turn to us. However, a large full-service bank with a capital-intensive business cannot operate its various divisions as profitably as we can with our focus on investment management. They would struggle to generate a double-digit return with a capital base of 29%.

So UBS and Pictet are not comparable in terms of the capital charge?

Yes and no. UBS is a full-service bank, we are a specialised investment group. Perhaps we see things a little differently than UBS due to our distinct focus. Capital and security are top priorities for us - not least because of our structure as a partnership. 

Banks aim to maximise profits while simultaneously ensuring security. It seems hard to reconcile the two. Balancing them brings challenges as in the case of Julius Baer, for example, which lost hundreds of millions after granting of loans to the Benko conglomerate.

This incident has nothing to do with the expansion of a private market offering. At Pictet, we invest on behalf of our clients with a focus on depth and broad diversification. We do not make concentrated bets on our own account.

But clients may require structured loans. Do you turn such clients away?

Yes, but there is also self-selection. Clients with these types of needs do not even come to us because they know that we do not offer such services. As a client, you cannot sleep soundly while expecting us to grant such loans.

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The Swiss financial centre is at a crossroads. Neutrality is being called into question, most recently with the sanctions against Russia which were adopted owing to international pressure. How does Switzerland need to position itself?

The world needs neutral countries. Switzerland can contribute to solutions, as we have shown time and again in the past. It must remain neutral, but also be aware of realpolitik. Ideally, Switzerland should develop its own expertise in sanctions, rather than merely adopting everything  from abroad verbatim. We have a lot of expertise in Switzerland, especially in wealth management. We are well-positioned to develop appropriate sanctions and put them forward on the international stage.

Do you mean that Switzerland has the expertise to define appropriate sanctions, but doesn't use it?

That’s right. The team at the State Secretariat for Economic Affairs responsible for these matters should be given the resources it needs, both in terms of quantity and quality. If we had a strong sanctions team, we could have engaged on an equal footing with the sanctions authorities of other countries and represented our point of view more effectively. The Swiss authorities would have been in a position to do more than merely accept and react. It is not acceptable to have a lack of clarity on rules for weeks on end, as happened in 2022. It poses a legal risk for banks that must not be underestimated.

Switzerland's indecisive approach on sanctions did not go unnoticed by international clients. Is that over now?

Sanctions were imposed, then came the collapse of CS. Events like these have a ripple effect. It will take time for the ripples they have caused abroad to settle. Switzerland must show at every opportunity that it is neutral and a state committed to the rule of law. As a country, Switzerland has a lot going for it. We can allow ourselves to be self-confident. For investors, there is nothing worse than the feeling that the location of their custodian bank is not safe. Perception and reality must align, and the greater the distance between the client and the financial centre, the greater the risk of overreaction. That is why image is so important.

Translation by Pictet Group