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Exclusive interview with Patrick Odier on private banking and sustainability in 2021
Interview published on 18 November 2021, in the Süddeutsche Zeitung
Süddeutsche Zeitung: Lombard Odier has survived 40 financial crises and two world wars since it was formed in 1796. What is your corporate philosophy?
Patrick Odier: We are a family business. I represent the sixth generation. We take the long view in all of our decisions and strive to avoid short-term trends, even if they have the potential to be very profitable. Our philosophy is: if the clients do well, the company does well.
Does having the name Odier come with special responsibilities?
If we have the opportunity and the privilege of becoming a Partner, we also have a duty to act as trustees. When the time comes to hand it back, we want the company to be in better shape than it was when we received it. This long-term vision not only applies to financial aspects, but also to our own reputation, the quality of our clients and our products and services. This is especially true when it's your name on the door.
Is the name an obligation?
We must consistently defend our company values, starting with ourselves. Our influence is at its strongest when the partners and managers are role models; when their conduct, what they say and how they communicate are exemplary. This is possibly even more important for a family business than it is for other companies.
Can you give an example?
We aim to keep the company's capital as liquid as possible, as a safeguard in the event of a crisis. Because we don't invest it, it doesn't generate any returns. Instead, our returns are reliant on the quality of our services. If our clients’ assets perform well, the basis from which we draw our remuneration increases. We therefore have a major incentive to do a good job: we can't make up for poor performance with other business.
Several other private banks work in the same way, so why do clients choose Lombard Odier?
Clients come to us because they know that wealth and asset management is our core business. As well as entrusting us with their assets, they expect to receive bespoke advice and sophisticated services. They trust us with their investments. We also observe a high demand for sustainable investments, particularly because we have strong expertise in this field.
Who are your clients?
Most of our assets come from private clients from family-owned businesses. Frequently, they are entrepreneurs themselves over many generations. In our private client business, one-third of our clients are based in Switzerland, one-third in Europe and the remaining third primarily in Southeast Asia and the Middle East. As a Group, roughly a quarter of our clients are institutional, such as pension funds, sovereign wealth funds, central banks and international organisations. A portion of our clients also come to us to use our technology platform. These clients are 12 institutions in Europe and Switzerland with a similar business model to ours.
How has the coronavirus crisis changed the business?
Clients appreciated the fact that we were very present during the crisis. We had the technology to regularly discuss investment scenarios with clients during lockdown, as well as to support them virtually during the crisis.
Has personal contact become less important in private banking?
Not at all – personal contact is and always will be important in private banking, but technology supports our client interactions. We also ensure that confidentiality is not compromised, as today's technology allows us to offer our services securely. We have reduced risk, diversified, taken advantage of opportunities, and the result has been very positive.
The rising equity markets have also played a part.
Naturally, the markets have also contributed to our very positive performance. However, our net new money inflows are very strong, client confidence in us grew even more during the crisis, and our investment mandates, money that we manage on behalf of our clients, account for almost 70% of our assets.
Clients need five million Swiss francs at their disposal for these services – is that right?
No, but when a client has less than one million francs, we have to use products such as funds, which are not as personalised as the products we can offer clients with five or ten million. If the asset value is too low, or the client just wants to deposit their assets, a different bank would be more cost-effective for them.
Do you intend to invest further in digital structures?
Yes, we are currently engaged in the second-largest technology investment in the company's history. We are overhauling the entire platform architecture as well as digitalising our services.
Can clients also purchase sustainable funds from Lombard Odier digitally?
They can. We are also currently assessing whether we can use blockchain technology to streamline and accelerate processes. Technology may also be a solution to purchasing positions more quickly and securely. However, we first need to see whether technology can deliver as much as we hope it can.
Are you seeing more interest in sustainable products from clients?
Everyone can see that our economic model is reaching its limits. Some clients would rather focus on nature, while others prioritise climate, water, waste or the circular economy for their investments. However, virtually all client discussions now address sustainability in some way.
So far, there are no international standards. Rules are currently being defined at EU level and there are initiatives in Switzerland as well, but there are still many grey areas. You are also collaborating with the University of Oxford in the field of sustainability. Have you gained any insights from this cooperation?
We are working with the University of Oxford and other institutions to gain scientific insight. We, as financiers, consider ourselves part of the solution. We want to understand what we can achieve through capital or asset allocation. The academic community is helping us develop a methodology to this end.
That sounds very complex.
It is very complex. We want to understand how a sector in the energy, food products or pharmaceutical industry needs to develop to achieve the goals of the Paris Climate Agreement. Let's take temperature, for example. Ten years ago, the concept did not exist in the financial industry. Today at Lombard Odier in addition to performance and risk, the temperature of a portfolio is also assessed.
Can you explain what that means?
All portfolios can contribute to increasing or decreasing the temperature in the atmosphere in the future, which is why we have introduced this measure for all portfolios. We also have other criteria. If you want to know how much of your savings contribute to water pollution, we can tell you, open a dialogue and adjust your portfolio accordingly.
Can clients make an appointment to do that?
Yes. Next, we also want to develop a benchmark for biodiversity with universities. Then it will be much easier for us to create a portfolio for our clients that poses less of a threat to biodiversity.
Critics complain that many advisors have no actual training in sustainability.What requirements do your bankers have to meet?
We have developed a training programme for our people because all of our bankers must be able to explain to clients why it is important to invest sustainably.
Another accusation is that banks are just greenwashing. There have recently been a few occurrences of this, at DWS for example. Could something similar happen at Lombard Odier?
We try to do everything we can to ensure that this does not happen. But we can never be completely certain that in one position of our 352 billion assets, there is not a single exception. In alternative asset classes, for example, there may still be difficulties, in an index or basket there may still be a company that should not (yet) be included. Here, the entire financial industry still needs to further develop the tools to avoid this.
What do you do to avoid this?
The description of the investment must be clear. When we say a fund is sustainable, it must be sustainable. We need to be able to verify this and must set better, transparent targets.
When you heard about what happened at DWS, did that ring alarm bells for you? Did you immediately check everything was in order at your firm?
We had a conversation with our authorities, which showed that Lombard Odier has already come a long way in this area and is a leader. However, when there is a risk in the industry, we always have to ask ourselves if we can still improve. Transparency is a goal we must pursue.
Green bonds are currently booming. Are they really all green?
They are still relatively new instruments, which have only been available since 2008. Recently the demand for green bonds has greatly increased. Many companies have realised that it is easier to attract capital with a green project, which is why they are taking their first steps towards sustainability. If, for example, an oil company wants to create green bonds related to solar energy, it is very important that all of these new vehicles are carefully scrutinised by an independent authority to avoid greenwashing.
You were Chairman of the Swiss Bankers Association from 2009 to 2016. During that period, the focus was the controversy over Swiss banking secrecy, the tax dispute with the US and the automatic exchange of information favoured by the EU. You are now President of Swiss Sustainable Finance, in which capacity you aim to turn Switzerland into the leading financial centre and are tasked with tackling greenwashing. Which is the more difficult role?
As Chairman of the Swiss Bankers Association, my job was looking at the past. In my new role I need to look to the future, which I think is wonderful. Reforming the Swiss banking sector was a challenge, but Switzerland is still the largest financial centre for international wealth management. As for sustainable investments, the Swiss industry has a leading role on a global scale.
So doing away with banking secrecy wasn't such a bad thing?
Convincing 350 banks was a challenge: the global exchange of information, new models and standards for taxation and systems to avoid money laundering – we introduced all of that. Today, we can say that banks are now part of the solution and no longer part of the problem. There are exceptions all over the world, and that includes the area of sustainability. It's a journey. In my role as President of Swiss Sustainable Finance, I try to make sure the right subjects are on the agenda at the right time.
What is currently on the agenda?
We recently worked with the UN to organise a global conference in Geneva. Entitled "Building Bridges", the round-table event brought together governments, NGOs and the private sector. It is essential we speak with one voice. While governments continue to subsidise polluting industries, things will remain challenging. How long do these subsidies have to go on? Can we set specific targets? How can we achieve them without creating different problems? These are the sorts of issues we addressed at the conference.
Lombard Odier is also strongly committed to impact investing and philanthropy. It is often hard to tell whether investments in such projects actually have a positive effect.
We are also working with universities in this area, so that we can measure the impact more effectively in future. Demand for philanthropy has grown sharply. We have an umbrella foundation, Philanthropia, which aims to find the best ideas in a cost-effective way. These often turn into concrete investment projects. For example, our clients have invested in projects in Africa in collaboration with the International Committee of the Red Cross (ICRC).
Lombard Odier was, of course, very involved in establishing the Red Cross in 1863. At the end of 2022, you will hand over the reins to Hubert Keller. Wouldn't it be nice to have another Odier heading up the Bank?
Of course – that would be nice. Maybe another Odier will one day lead the Group again. My children could still move in that direction. But for Lombard Odier, it has always been a matter of having the right person at the right time with the right skills. We have found that person in Hubert Keller, whose father was already partner in our firm.
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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