Bruno Desgardins, D.G. adjoint de BBSA
True to its tradition for discretion and tailored customer service, the key advantages of the private bank BBSA are its over-all view of world markets, its alternative investment management solutions and its relations of confidence with selected clients.
Commerce International: In the last few months, the banking world has been badly hit by the subprime crisis, which in some cases has led to substantial asset depreciation, even in Europe. What impact has this period of great uncertainty had on your bank?
Bruno Desgardins: “As a private bank, we have not been affected by the crisis for the simple reason that we have absolutely no risk exposure in this area of banking. It is the universal banks which have been hit, to a greater or lesser extent, depending on their commitments. By definition, we only grant loans to our clients in consideration for their asset holdings. The massive asset write-offs we are seeing at the moment, and the remaining uncertainties as to the risk exposure of certain banks, do not therefore affect us in any way.”
C.I. : More generally speaking, what is your view of world trends in private banking?
B.D.: “It is a fast-developing sector world-wide. It currently represents 40 trillion dollars of assets under management and has enormous growth potential given that over ten million people in the world personally possess assets worth over a million dollars, excluding real estate. It is estimated that growth in the sector is one and a half times that of world GDP. It is also a highly fragmented market in which medium-sized actors have a role to play: the largest private bank only has a 4% market share and the ten leading players only hold 15%. And there is plenty of room for niche banks such as ours, given that our clients are almost exclusively natural persons rather than the institutional clients found in other institutions.”
C.I. : What does your bank offer that the others don’t?
B.D.: “The clients who come to us from all over the world know that we build up very strong personal relationships with them, based on mutual understanding, accessibility and regular contacts over the long term. By their very scale, large banks find it hard to offer their clients personal service and high-performing exclusive products; they have difficulty avoiding high staff turnover and providing clients with one-to-one relations with high calibre executives with real decision-making powers. In our bank, the account managers do not change from one day to the next! It’s the same for our clients: people come to us by word of mouth like in a private club and once they have joined, friendships are often built up between our managers and their clients. It should be noted that 70% of our client accounts are managed on a discretionary basis.”
C.I. : In terms of fund performance levels, what results have you had in the past few months? What is your general investment philosophy and which areas do you focus on?
B.D.: “First of all, I would like to point out that our funds under management reached a figure of 4 billion euros at end 2007 compared with 2.5 billion at end 2006. Our net consolidated profits amounted to nearly 30 million euros in 2007 and we now employ 75 people in Geneva. Our policy has always been to combine our in-house expertise with a selection of the best products available on the outside market. Contrary to other private banks, we do not have capital protected products, which are mainly profitable for the banks but less so for the clients! Half of our asset management services are based on open architectures and 30% concern alternative investments, compared with an average of 16% in the Geneva market. This ratio is a performance factor in itself, particularly when there is a downturn in the market as there has been since early 2008. In this way, our alternative funds have only fallen by 1 to 2% – and some have even risen very slightly – whereas the global market has lost 12%. We are also free to either close subscription to a fund to protect overall performance, or to create new ones, as indeed we intend to in the coming months.”
C.I. : You have always had strong positions in emerging countries, particularly in Asia. In your opinion, what are the prospects for this region?
B.D.: “The overall market trend is unstable, with little visibility particularly concerning the scale of the slowdown in the American economy – which is inevitable – and how long it will last. This has already had an impact, notably on the stock exchange indexes in the emerging countries, which have fallen more than in Europe or the United States. This means that the famous ‘decoupling’ that so many people were forecasting did not in fact happen and that the emerging countries’ economies are far from being able to take over in terms of growth. This is quite natural if we take two figures: consumption is estimated at 10,000 billion dollars in America and 1,000 billion in China! Moreover, the greatest prudence is required in the short term as far as China is concerned because Chinese stocks and shares have risen to exaggeratedly high levels in some cases. In the longer term, there is little doubt that, sooner or later, the yuan will increase, similarly to the yen in the 1970s. When the Chinese finally agree to a rise in their currency, it will be a sign that they have gained confidence in their domestic growth. ”
C.I. : With respect to the global economic situation, you wrote in a recent publication that “we are seeing the end of the process consisting in stimulating growth by household debt, guaranteed by rising real estate prices." Is the worst to be feared?
B.D.: “What is certain is that the Anglo-Saxon growth model, based on the triptyque of debt / consumption / low interest rates is not viable in the long term. Having said that, the United States will obviously do everything possible to avoid too strong a recession, especially in the run-up to the elections. They have already lowered their interest rates and will continue to do so. The situation is nothing like the 1929 crisis, for at least three reasons. First, there is no cash shortage as there was in 1929. Second, apart from the banking sector, businesses are in relatively good health. Third, the budget situation in America is satisfactory as the deficit only amounts to 1.2% of GDP, which leaves room for strong State intervention. In fact, we are currently increasing the percentage of our investments in the American market, where we had certain reservations in the past. In short, apart from the current doubts regarding the recession, there is a real risk of financial bubbles sparked off by the American policy of rapid interest rate cuts.”
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