Why Start a Bank? Eric Syz’s roots in Swiss banking go all the way back to 1856 when family members on both sides helped found Credit Suisse. Like them, he also had ambitions to found a bank, but he would not follow the same time-honoured principles.
“In the mid-90s I decided to start my own bank because I felt it was time to do private banking in a different way than it was done in the past,” he said.
What Syz noticed was that Swiss banks relied on the twin appeals of banking secrecy and a stable country with a strong currency and sound public finances. The quality of the product, he says, was not at the forefront of their preoccupations.
“It’s like if you have a mountain hotel and sell the fresh air and the beautiful view. That’s great, but you need to have some more added value. There was a time when relaxing while admiring the Alps was enough, but now you need good ski tracks and entertainment,” he said.
By the mid-1990s, Switzerland’s competitive advantages were waning. Secrecy was still important, but Syz knew it couldn’t last forever. He felt that relying only on those assets was not sustainable, but that if one instead concentrated on the substance of the services being offered, this would be a viable long term project no matter what happened to the strong currency and bank secrecy. “I decided to concentrate on the substance that I couldn’t find at the places where I was working before,” he said.
Coming from an industrial family, Syz understood that it is very hard to create capital, and even harder to preserve it over time. But having worked on Wall Street and in London, Syz had experience with financial products not common in Swiss banks at the time, and he knew how capital preservation could be accomplished through investment. He grew frustrated with the conservative Swiss bank offerings, remarking that he couldn’t see where, as a client, he would go with his own money.
“Most of the things we have done we’ve done out of conviction because we saw a need for it—beginning with ourselves,” Syz said. The reference is to Banque Syz co-founders Alfredo Piacentini and Paolo Luban. When their partnership agreement ended earlier this year, Syz became majority shareholder and took the helm of the Group. He says the move has been a great motivator and catalyst for performance. “It gave our top management a big opportunity to step up and take on more responsibilities.”
Switzerland’s Got Talent
“Switzerland has accumulated an incredible amount of understanding, knowledge and wealth in the sense that they are able to manage a portfolio in almost any currency, and globally,” said Syz. He argues that this will be the Swiss banking sector’s killer app going forward. “Try to go to New York, Boston or Chicago and manage a portfolio in another currency other than US Dollars. It is absolutely impossible,” he said. “Not only do people not have the systems to do it, but they don’t know how to do it.”
In Switzerland, on the other hand, not only is it possible but, one can easily find experts in Euros, Yen, Dollars, Pounds, and Swiss Francs, and probably some other currencies like South African Rand or Australian Dollars.
“That is already an enormous competitive advantage. Then there is the fact that we know how to invest globally in US stocks, Japanese stocks and European stocks. That, again, is something that you probably cannot find in the United States; you can’t find in the Far East; maybe you can find it in the UK. “
Growing in Europe
The relinquishment of bank secrecy means a much more competitive environment bringing margins under pressure. “What we need to do are two things,” said Syz. “We need to grow and we need to have our costs under control.”
The bank is expanding its asset management business on the one side, adding new strategies to serve institutional investors. Asset management, says Syz, is a very competitive game and it has been divided into two camps. One is the big index players, for whom it is just a question of volume. His bank cannot, and does not want to, compete with them. The other camp, he says, is the “alpha generators,” creating higher than benchmark returns against little or no additional risk. That is where Syz competes in the asset management marketplace.
But while growth is the strategy for Europe, Syz does not envision putting more wealth management assets in Asia.
“We prefer to focus on mature markets. Our clients are experienced investors who are able to understand our more sophisticated investment style. I think if you look at the numbers, not that many people make money except for the very large institutions. Will we have a representative office in Hong Kong? Sure—to inform clients who want to put their money in Switzerland or Europe. But we are not going to open an Asian bank to serve Asian customers.”
On the other hand, he said, the Syz & Co. Group will try to establish itself in Asia with a local presence and local know-how in institutional asset management.
A New Era of Competitiveness
Syz is bullish on his bank’s competitive capabilities in this new era of regulatory compliance.
“When bank secrecy was something that could be sold, in order to compete with the people who had been doing it for hundreds of years and had a great name for themselves, we had to compete by being better on the product,” he said. Instead of battling on the historic banks’ turf, Syz had to fence off new territory as they did in Italy.
“We were probably the first to be doing business in Italy with an Italian banking license. And this was in 2000,” said Syz with obvious pride in having previsioned today’s landscape. “We said we have to go to the onshore market. It was a more interesting market, and not so many people compete with a global knowledge in those markets.”
In October of this year Banque Syz & Co. was voted ‘Best Private Banking Boutique’ by the jury of the Global Private Banking Awards. It appears that Syz’s early strategy to break away from the pack, eschew convention, and take a more sustainable approach is paying off.
Article by Peter Carson