Change, the New Face of Private Swiss Banking




ZURICH, Dec. 5— Raymond J. Baer spent his traditional October vacation in Asia tracking the route of Buddhism and meditating on the future of Swiss private banking and the institution that bears his family name.

What he came back with was a renewed determination that Bank Julius Baer, the company he will lead when his uncle Thomas Baer retires as chairman in May, will weather what he calls the worst markets since the Depression.

His goal is to keep the bank, the country’s largest publicly traded private bank, with assets of 107 billion Swiss francs ($72.7 billion), independent and fit.

But private banking, an industry firmly embedded in Switzerland’s history, culture and economy, has hit hard times. Assets under management at Bank Baer have fallen roughly 19 billion Swiss francs ($12.9 billion) since the start of the year, mainly because of weaker equity markets.

At its annual year-end news conference today, the company announced that it expected net income to be ”somewhat under” 200 million Swiss francs this year, down from 225 million francs last year. Baer’s share price has fallen nearly 40 percent in the last year.

The company also officially presented its strategy for making money in a new lean era, including a partly reconfigured executive board, restructured business lines and cost-cutting measures.

Analysts say that the company is doing as well as any private bank could in the current tough environment. But the future patriarch, the fourth generation to run the bank, clearly will begin his career at the close of an era.

The rich, once content to park money in a numbered account and visit their banker once a year on their way to the ski slopes, are now more demanding. No longer happy with preserving fortunes, they are insisting on guaranteed returns, and they want their money closer to home.

Political pressures, too, are bearing down on private Swiss banks. The Organization for Economic Cooperation and Development and the European Union are pressing Switzerland to loosen if not eliminate its famous banking secrecy laws, and the Swiss fear that other European countries, notably Germany, will copy Italy and offer a tax amnesty that could drain billions more from Swiss coffers.

Baer and the other small boutique banks here with family names, like Vontobel and Sarasin, have spent much of this year watching their customers flee to the two giants, UBS and Credit Suisse, lured by the big banks’ more sophisticated technology and larger palette of financial instruments.

”We must accept the fact that in times of uncertainty, there is a tendency to say that big is beautiful, which is O.K. — you can’t do anything about it,” Mr. Baer said at a recent interview in his corner office just off Bahnhofstrasse in Zurich. It is a simple, understated office with, symbolically, a stuffed bear seated at the head of the conference table.

”We are here, we work on our model, and we are ready to accept them back when they want our different kind of service,” he said.

Mr. Baer says that reports of the demise of the cozy world of Swiss private banking are premature, but added: ”One shouldn’t live in hope that things will come back as you knew them. They will change. The challenge is to change your organization, change the mindset of the people.”

Mr. Baer, 43, cut his teeth at Salomon Brothers in London in the 1980’s before joining his family’s bank and working in the New York and Zurich offices. In 1996, he became head of the private banking division.

The bank traces its origins to 1896, when Julius Baer, Mr. Baer’s great-grandfather, joined Hirschhorn, Uhl & Baer. That partnership dissolved when Ludwig Hirschhorn died in 1901, and Julius Baer & Company assumed its assets and took a seat on the Zurich Stock Exchange. Baers have run the company ever since.

Mr. Baer has resigned himself to the fact that the year he makes his debut as chairman will be difficult.

”We’ve gone through one of the most exciting bull markets in financial history, now we are in a prolonged bear market, which is a logical consequence,” Mr. Baer said, while acknowledging that ”this is a bear market that we haven’t seen in more than a working generation.”

The bank has been the subject of takeover rumors since it began announcing increasingly depressing results two years ago. The Baer family, which owns some 54 percent of the company’s bearer shares, denies any intent to sell. Instead, Mr. Baer hinted that a small acquisition within Switzerland might be in the cards — that a fire sale could be coming soon — though he said the bank was not considering a large-scale takeover in this economic environment.

Baer, once a fast-expanding sprint runner in the asset management world, was one of the first private banks here to start making drastic cuts when the markets began to sour.

”Our mistakes were forgetting our roots, forgetting our real strengths and trying to be everything to everybody,” Mr. Baer said.

The bank has cut its staff by 10 percent, scrapped technology expansion projects and has returned to focusing on its core business. It has merged its investment funds and institutional asset management divisions, and is reorganizing research activities to eliminate overlap.

The bank closed its private-client offices in Monaco and Hong Kong. It will widen its asset management activities in Germany and Italy by teaming up with local partners. Baer recently signed an agreement with Credito Valtellinese to provide private banking services in Italy next year.

It also plans to build up its institutional asset management business in the United States over the next three to four years, and expand in the Middle East by opening its doors next year in Dubai.

”There is an opportunistic element, as well as a strategic element to our decision to open a branch in Dubai,” Mr. Baer said at the news conference today. ”The opportunistic element is that U.S. banks for obvious reasons are finding it relatively difficult to make business in this part of the world.”

Strategically, the bank hopes to entice around 200 to 300 potential wealthy clients in the region, he said.

Still, Mr. Baer does not rule out the possibility of purchasing a small bank in Switzerland to help prop up assets. ”It is critical to get new customers, get new collaborators, but everybody is cautious for good reason,” Mr. Baer said. ”But I hope by year-end, people will have to decide.”

What about the European Union’s pressure on Switzerland — where an estimated $3 trillion, or one-third of the world’s offshore private wealth, is deposited — to negotiate a tax-information sharing agreement that would in effect require the Swiss to give up their banking secrecy laws?

Mr. Baer said the Swiss were not likely to give them up anytime soon.

”In my opinion, it is money that is being argued here,” Mr. Baer said.

The Swiss government has offered to impose a 35 percent tax on interest earned in Switzerland by European Union citizens, a proposal the union’s finance ministers are resisting.

Still, Mr. Baer says he is fighting for the right to financial privacy.

”As a human being I believe financial privacy is a fundamental right,” Mr. Baer said. ”I don’t have to sacrifice my financial privacy on the altar of transparency.”

When asked what Bank Julius Baer will look like when he reaches the mandatory retirement age of 60, Mr. Baer said, ”I strongly hope the family still has a strong influence on the characteristics of what Baer should look like; that it is still a manageable size and not a supertanker.”

After all, he said, there are 45 children in the fifth generation waiting for their chance to run the family business.

Photo: Raymond J. Baer says his goal is to keep Switzerland’s largest publicly traded private bank independent. (Sebastian Derungs for The New York Times)