Falcon CEO Eduardo Leemann
As far as reinvention goes, Falcon Private Bank must take first prize for the wealth manager which has been through the most change in the shortest period of time.
Three years ago it was the US$22 billion private banking arm of American International Group, the (at the time) triple-A-rated American insurance company. Then the financial crisis took a grip and AIG’s rating started to look increasingly wobbly. Within weeks it was being rescued by the US government with a US$182.5 billion bailout – the largest given during the financial crisis.
AIG scrambled to sell off assets to repay the loan, which it now has done in full. The private bank was one of the first bits to go. Within a matter of months, AIG Private Bank was sold to the Abu Dhabi government for approximately US$308 million – including US$55 million to pay back AIG’s debts.
When your shareholder structure changes so radically, going from an American triple-A company to a Middle Eastern sovereign wealth fund, you have to sit down and explain that to your clients – and it was not an easy task, chief executive Eduardo Leemann told WealthBriefingAsia exclusively.
“Not all clients are comfortable with Middle Eastern investors,” he said, in an interview at the bank’s Hong Kong office last week. “We lost about 50 per cent of our assets after the sale. We went from US$22 billion to US$11 billion of assets under management, ” he said.
Leemann has seen a lot. The former Goldman Sachs head of private banking, and former deputy head of private banking at Julius Baer, had been with AIG Private Bank since 1997. But in his 15 years at the firm, the last three have certainly tested his experience.
“Almost all of our Latin American clients left, a lot of our Asian clients kept their accounts but withdrew money. Some of the withdrawals were due to the financial crisis but also people wanted to see what would happen under our changed ownership,” he said. The bank now does most of its business with wealthy individuals in Switzerland, followed by the UAE, Russia and Asia.
After the sale to Abu Dhabi's Aabar Investments, the private bank totally overhauled its structure. Within a year it had shut down its Singaporean relationship manager business – cutting nine staff out of ten – and turned it into a booking centre. “You can’t do everything at the same time, you have to focus. Our Singapore relationship managers didn’t work out with the new ownership structure,” said Leemann.
Early on the decision was made to cut most of the institutional business in Switzerland and spin out the retail business to Swiss rival boutique Sarasin, now named Bank zweiplus, in which they still own a minority stake.
In Hong Kong, which always has been and still is its Asian hub, headcount plummeted from 100 in 2008, to 40 after the sale, 15 of which are relationship managers. The team is primarily focussed on Greater China markets. It only has a couple of in-house products, most advice it offers is on third party products.
On the front foot
Now the bank is back up to 50 staff, but is eager for more.
Leemann said he wants to hire “as many as we can get our hands on” but he is also realistic. “I’d like to add another ten within the next year, seven of which should be relationship managers,” he said. He alludes to the difficulty of hiring talented bankers in this region, without having to pay a fortune. Leemann does not want to bring on what he calls “superstars” – instead he is looking for “average bankers”.
This is partly because Falcon Private Bank does not want to pay superstar wages. Like many of its peers, cost to income ratios are at 100 per cent (on a fully loaded basis, including every expense) and although the private bank is breaking even, it has a big shareholder to appease.
Also, Falcon is for many in Asia, and indeed even in its home markets of Switzerland and the Middle East, an unknown brand. Up against the likes of Credit Suisse and UBS, with their herds of relationship managers and their ubiquitous marketing campaigns, luring talented bankers is not always easy.
“This is the land of the big names and the big brands. We are working to increase our brand visibility, which will play a part in attracting staff to Falcon,” he said.
But the main reason for avoiding the hotshots with the bulging client books, is to protect the culture of the firm, said Leemann, something which, having gone through so many changes, he is very sensitive to.
“We are not looking for superstar bankers. There are the obvious things, relationships, books of business, but that is not all these days. I would prefer an average banker who fits in. If you get a hotshot who makes three times more than everyone else, although there are short term gains it can be very destructive to your culture,” he explained.
He is not going to replace former head of Asia-Pacific, Alex Jagmetti, who left last September after less than 12 months in the role. Jagmetti had been based in Singapore, a difficult location for him to manage the business, as the beating heart of the Asia franchise is in Hong Kong. There will not be a successor but James Mok, branch manager of Hong Kong, now oversees the business, with plenty of input from Leemann.
Two other points for his recruiter tick-list. All new bankers must speak Mandarin.
Plus, Leemann would prefer to hire a team, if possible, although he admits that is even harder. “That is how we are growing in Russia but we are also facing the challenge that some may be reluctant to move amid the global economic uncertainty.”
Plan of action
Scuderia Toro Rosso and Leemann
These aspirations are all very well, but being a newcomer to Asia, how does Leemann intend to grow? Marketing is low-key. Aside from the sponsorship of Formula One team Scuderia Toro Rosso in the Grand Prix, they do little in the way of advertising.
So what is the bank’s USP (unique selling point) that will draw in new clients and staff? His answer is that he can offer more to clients – in the form of loans and financing - than most other banks.
“We can do certain things others are not willing to do. There are around 3.7 million Chinese millionaires and every one of them has a problem – a financial issue – which they need a solution for. These are usually: how do I diversify my assets, gain liquidity, and develop my business. Our USP is that we can do a single stock loan for a mainland Chinese client that another bank wouldn’t do because of the potential risks. We are willing to go further than others would and look beyond the numbers,” he said.
For a bank that has been through such revolution during an already tumultous market, Falcon is well on the way to rebuilding from the rubble. Leemann has aspirations to take asset levels back up to their high water market of US$22 billion within the next five years.
This will be split as follows: US$3 billion in the UAE, US$5 billion in Asia US$10-12 billion in Switzerland and US$3 billion in Russia. Assets in Asia are now at $1.1 billion, split between its 600 clients. The bank has 3,600 private banking clients globally.
So what are the next steps in Leemann’s grand plan? After such big changes, will he spend time consolidating? He shakes his head.
“You have to adapt your strategy to survive. Every year on the 30 June we have a big company review, we look at what works, and what doesn’t, and we make changes.”
He adds that the bank is working on one acquisition in Europe at the moment – the binding offer is due this week. “Switzerland is the best place for an acquisition,” he hints. At the time of publication, nothing had been announced.
And the next step in Asia? He would like to bring down the bank's cost to income ratio in the region, ideally to 80 per cent. He wants to grow the brand. And he would also like to reinstate the Singapore relationship manager business, although he says he is "waiting for the next crisis to do that.” Growing AUM by a factor of five, within five years, is a big task, but Leemann seems excited by the challenge. "We are lucky to be starting from a clean sheet of paper, which not everyone can say."