We thought the senior partner at LODH was going to take a back seat. We were wrong. "I will be able to move closer to clients and investments."

 

 

Thierry Lombard: We are eight equal partners with unlimited liability, and roles, functions and responsibilities that evolve over time. The main mission of the "primus inter pares" is to ensure the coordination of all the strategic decisions taken by the partners and ensure they are in the interests of the clients, the company and the staff.

 

Personally, I will initially do my best to ensure the transition proceeds as smoothly as possible. Then I will devote my energies to more operational activities, which have been my passion for 20 years: client relations (a key differentiation criterion for private bankers) and the financial markets. I am returning to the ranks, so to speak.

 

 

He is the orchestra conductor who is responsible for the partners’ weekly meetings. It is an important role because decisions are approved by consensus. That is one of the particularities of family businesses: the senior partner is neither a president with the casting vote nor a CEO.

 

 

He took an eight-month sabbatical and returned to work on May 1. Our partner contracts allow us to do that. Pierre Keller, for example, did the same thing some years ago to attend a course at Harvard. People in academia take sabbaticals, so why not in the private sector? It’s a personal choice.

 

 

Before taking part in a race, you have to charge your batteries. Patrick Odier has done a lot of running at a fast pace. He is taking on a heavy burden of responsibility and he has devoted a lot of energy to his in-house duties as well as his external responsibilities: economiesuisse, Swiss Finance Institute… So it is a justified and wise decision. It is a long and hard road and we work at a different rhythm now than in the past.

 

 

The office of senior partner also entails responsibility for risk management: it is important to keep risk management and operational activities separate, otherwise you go into automatic pilot.

 

 

I will speak to Patrick Odier about it. We have actually already talked and I will probably retain responsibility for pensions. I care deeply about our pension scheme. For both HR and the company, we aim to make the most equitable decisions over a period of 10, 20 years or more. We also need to be able to modify or develop our decisions if we see they are not turning out as we want them to.

 

We initiated a measure with Jean-Pierre Beausoleil to allow our staff to take early retirement. Two years ago, we had to take two responsible steps: increasing the retirement age and decreasing the technical interest rate (from 4% to 3.5%). The change was implemented fairly smoothly, although it did trigger a lot of questions. I think our staff can react in two ways when they know a system we propose to them entails risks. Either they put their heads in the sand and refuse any change, at the risk of losing everything, or they want to be sure they have a solid system, which may need modifying in their long-term interests. Sometimes I wish politicians would show similar courage, even if it is harder to make these decisions at a national rather than corporate level.

 

 

Research, product range… Anything which helps us understand what our clients will need tomorrow and the day after, and ensures we have either the necessary skills in-house or access to the best external skills.

 

Three to five years ago, when there was so much discussion about Asia, we asked ourselves how we could use the opportunities presented by the new emerging markets to benefit our clients. Equities? Private equity? Hedge funds? Through our own skills? If not, through whose skills?

 

Let me give you another example: when the euro came along we suddenly lost the diversification benefits of our European currency holdings. In response, we looked to the currencies of the emerging countries. So we had to understand their economic structure and monetary evolution… We recently completed a back test on the ruble, the currencies of the Middle East and the renminbi. Over the past two years, a basket comprising the currencies of these three regions earned 8% on average. Five years ago, however, people would not have thought it possible to earn money with those underlyings.

 

 

Understanding the impact of a significant change in our economic models on stock market and corporate evolution. That is what prompted us to join Generation. We need to move from an economy that uses a lot of carbon to a situation where we emit a lot less. This change will provoke a huge transformation, the extent of which has not yet been fully understood. The economist Nicholas Stern estimates that if we were to start to deal with it now, it would cost about 2% of economic growth. But if we wait ten years, the cost will be a lot higher. So the stakes are high.

 

 

The financial crisis raises two types of question: how to put some order back into the financial environment, and how to reduce risk. We need to analyze how these elements will influence market evolution and products… For example, if we had less leverage options, would hedge funds have the same potential? I would like to contribute to this type of debate and support people who are already dealing with these issues.

 

 

The big issues will include the ageing population, nutrition (and how it affects age-related illness), energy, the emerging markets, the impact of demographic growth on our environment… This is what I find fascinating in this job: watching developments unfold, trying to understand them and see which economic and social models are formed in response to these challenges. I also think that real-time information has made us lose our perspective somewhat. I believe much more in analysis. That is how Al Gore is deciding which strategy to use in response to climate change.

 

 

What he hopes for most of all is the rapid introduction of a carbon tax. It is the only intelligent way of addressing the problem.

 

 

Yes. Instead of taxing savings or work, let’s tax carbon: it is gradually killing us. Until we put a price on this indirect cost, we will not acknowledge it.

 

LODH SIX YEARS ON

 

 

If I could turn back the clock, I would do the same thing. It was right to combine the two banks’ strategies. It put us on the right track.

 

 

The conflict between our internal responsibilities due to the merger and our duties towards our clients was difficult, because the merger occurred when the markets were going through a tough time. It is not easy in those circumstances to explain to clients that the markets, rather than the merger, are responsible for a decline in performance. There was some confusion, including among the management. Internally, there was also the shock caused by our having unfortunately to release some of our staff, which goes against the grain somewhat as we prefer stability in our private banker structure.

 

The other problem is that internal preoccupations leave less time for one of a company head’s vital roles: client relations. It would have helped us if we had had 12 months instead of three to prepare the merger.

 

You can draw some parallels with the subprime problem, although it is on a different scale: whoever has them on their balance sheets (we do not) does not just risk incurring losses, they may also find they have less time for their clients, their operations and their job in general.

 

 

Making the staff and management of both banks proud to work for LODH and to put the past behind them. To accept the change and constructively approach new ways of working and develop a new corporate blueprint.

 

 

There was a lot of confusion about that: the bank did not make a loss, it was a fund of hedge funds. They are designed to diversify assets over many hedge funds, two of which ran into problems. So, yes there was an impact on those two hedge funds, but it was just a hiccup in the bigger picture. The result was that our fund of hedge funds was penalized for its performance, but it’s nothing like the scale of the fall in UBS share prices, for example. The financial repercussions for the client (who usually has a 10% to 15% hedge fund component in their portfolio) were a lot less than they would have been on the equity side, not to mention the losses that someone investing in UBS shares would have incurred!

 

 

It is true that our institutional business has not been performing as well as it could. That is why we are now placing more emphasis on institutional management, our aim being to establish two strong pillars.

 

 

No.

 

 

Our aim is to remain modest in size, in other words around 2,000 people. To attain CHF 250 billion in assets under management (editor’s note: by the end of 2007, funds under management were CHF 177 billion, of which two thirds were in private banking). This seems a reasonable target to achieve by 2011, even if the events of the past six months may have pushed our objective further into the future. But otherwise, it is realistic: it requires an average growth rate of 5% from the stock markets and 5% from net client deposits. We have reached those targets easily since the beginning of 2000.

 

 

There were two reasons for the market downturn: a lack of confidence in the financial system and an element of correction linked to excesses and the economic situation. Since the US intervened forcefully to save some banks, some of the concern has been alleviated, because these interventions showed the financial system will be protected.

 

 

No, I think it’s worse than that. They were saved because the consequences of failure would not have been managed or even manageable. We cannot understand what a collapse would have entailed; the financial world has become so complex that the players (bankers and their regulators) no longer know the precise nature of the risks or even what they are.

 

The interventions have increased confidence by showing that we won’t just let the markets have free rein to enter an environment which has additional risks. But there are always hidden hazards. And we won’t solve problems by not seeing or understanding the nature of risks. So I am still cautious about the financial markets and I think the economic situation will become more difficult.

 

A BANKER VERY MUCH PRESENT IN THE CITY

 

Paradoxically, since Thierry Lombard announced he would be vacating the bank’s highest-profile position, that of senior partner, which he has held since 1995 (he will be succeeded by Patrick Odier next year) he has been more visible than ever. This is due to a combination of factors.

 

First of all, his designated successor took an eight-month sabbatical. Then the partnership signed with the American company Generation, whose Chairman is Al Gore, was confirmed just a few weeks after the former Vice-President of the US was awarded the Nobel Prize. Then, when Bill Clinton’s right-hand man came to Geneva in March to present his company which specializes in sustainable investment, he was preceded by rumors that he planned to launch a comeback on the American political scene. In terms of convenient publicity, Thierry Lombard could not have hoped for more.

 

But it would be misleading to attribute his visibility solely to serendipity. The Geneva banker undoubtedly has intuition. For example, ten years ago, Yann Arthus-Bertrand, a little-known French photographer at the time, gave an exhibition of his photos in a small studio in Davos, on the fringe of the Forum. Thierry Lombard approached him and they established a rapport. Some years later LODH sponsored the photographer’s first public exhibition in Switzerland, after he had become world famous in the meantime. Last summer they teamed up again for another exhibition, in cooperation with Knie this time. Today the banker is a member of the Good Planet Foundation, created by Yann Arthus-Bertrand, which aims to respond to those bodies (companies, public authorities…) who want to take action in promoting sustainable development.

 

It was the same with Al Gore. He was famous two years ago when Thierry Lombard saw his film (An Inconvenient Truth) and decided to approach him, via David Blood, co-founder of Generation with Al Gore ("I wanted to team up with the best"). But at that time he was seen more as someone of the past who had found a way to reposition himself via climate change. It was a Nobel Prize and an unexpectedly complicated American political campaign which placed Al Gore back in the limelight.

 

Those are just two of Thierry Lombard’s commitments outside LODH. But they aren’t the only ones: this sixth generation banker has a high profile in the City.

 

He is passionate about family businesses and has initiated several published works on the subject (some of which are illustrated humorously by Gabs). He created the Family Business Chair at the IMD and is a member of the Board of the Family Business Network. "I wanted to be sure Switzerland had a center of competence for research and teaching in the field of family businesses. These "rare animals" need advice, support and managerial assistance. This initiative applies to all the questions connected to financing and strategy."

 

This desire to develop centers around the Lake Geneva area is also evident through a project being undertaken with EPFL (a school he knows well as he has been on the Board of the Swiss Federal Institute of Science & Technology for a number of years). The bank has just launched the LODH Chair for future generations. The Chair aims to provide long-term support for multidisciplinary and international research conducted by EPFL in the field of sustainable development in order to respond to the crucial challenge of a sustainable future. The partnership thus approaches sustainability, one of Thierry Lombard’s favorite topics, from another angle.

 

First there was the raising of awareness, then the expertise of Generation ("ensuring we have the skills to enable us to invest our clients’ capital judiciously in a changing environment which is set to change even more"), and now education. "The engineers who will graduate from EPFL over the next ten years will play a very important role. They will need to introduce the next dimension: how do we move from being a society that consumes too much carbon to a society that emits very little. Education now has a new and significant dimension because we will not be able to avoid this issue. It’s a nice challenge for French-speaking Switzerland."

 

Thierry Lombard is interested in promoting the region’s influence and this has prompted other initiatives. For example, the bank is sponsoring the new fee-based English-speaking site launched by the Edipress media group in Lausanne. "We have a lot of staff all over the world: this site will enable them to know more about the region where our headquarters are located. It is an integration process for and with the region."

 

 

This list of his commitments is indeed a long one. A final example: Thierry Lombard is also involved with the ICRC, a family tradition. In this capacity he went to Afghanistan five years ago to see how the Red Cross delegates work in the field. He has also been Chairman of the ICRC Foundation for 10 years which contributes to financing the training of Red Cross delegates. "We managed to turn this minor project with a very low capital base into a veritable institution." With the help of the other Foundation Committee members, he has managed to group together eight major Swiss companies. When he arrived, the private sector did not contribute much to the ICRC. "It only donated CHF 300,000. That didn’t seem a lot to me." Since then the foundation’s guarantee capital has increased significantly, and links have been established between the private sector and the ICRC. "This partnership will also allow us to exchange skills. We can learn a lot from each other."

 

 

 

The bank created in 1796 had 14 partners when Lombard Odier merged with Darier Hentsch in 2002. Following some departures, notably Barthélémy Helg and Richard de Tscharner two years ago, followed by Jean Bonna a few months ago, and the arrival of Hubert Keller in January 2006, there are now eight partners with unlimited liability. "A number that is sufficient and easier to manage" comments Thierry Lombard. The current structure has two senior partners: Thierry Lombard and Pierre Darier, who will hand over to Patrick Odier in January 2009, when they become managing partners like their peers.

 

Each managing partner has his or her particular remit. Anne-Marie de Weck and Jean Pastré manage private banking, supported by Pierre Darier. The institutional business, products and mutual funds are managed by Bernard Droux and Hubert Keller (and Serge Ledermann, partner of the Private Holding Company). Finally, Christophe Hentsch is responsible for operational management and logistics. The bank has 2,000 staff and 24 offices.