OFF TO A FLYING START
A renaissance of two companies since the financial crisis has led to the birth of Falcon Private Wealth, a London enterprise with Swiss parentage. Josh Spero meets the key cast members
We’ve all heard of phoenixes rising from the flames — but falcons? Around the corner from Harvey Nichols, on Knightsbridge, is an example of that rare bird. Falcon Private Wealth used to be Clariden Leu (Europe), until it was sold earlier this year by Credit Suisse to Falcon Private Bank, which in turn used to be AIG Private Bank until the financial crisis did for its parent (or rather, its parent did for the financial crisis). AIG Private Bank was bought out in the crisis by Abu Dhabi’s sovereign wealth fund and renamed as Falcon Private Bank, headquartered in Switzerland. It has now expanded, with Falcon Private Wealth as a new subsidiary, and with a representative office in London.
London is the perfect place for Falcon’s clients, who tend to be entrepreneurs and industrialists in emerging markets like Asia and the Middle East and frontier markets like Eastern Europe and Sub-Saharan Africa, with investible assets of between £5 million and £25 million. As Nick McCall, recently appointed CEO of Falcon Private Wealth, says, ‘You’ve got to be on a plane three hours from Heathrow before you start hitting our clients.’ These clients may already be connected to London, with children at school here or favourite sales assistants at Harrods, but equally what they want is London’s security, in the financial, legal and physical senses.
‘Very often those individuals need help coming into the Western banking system,’ says McCall. ‘They may not necessarily be 100 per cent comfortable with the legal or political environment of where they’re located, so they’re looking to diversify away from their country and most often even out of their region. London,’ he says, ‘despite all the politicians’ best attempts to the contrary, as a financial centre still is a premier location for these individuals.’
London is not the latest stage in Falcon Private Bank’s global expansion, but actually a single step after an important retrenchment and strategic repositioning. Eduardo Leemann, the CEO of Falcon Private Bank and formerly the CEO of AIG Private Bank for twelve years before the sale, says that one of the first moves of the bank after its acquisition by Aabar Investments PJS, an arm of Abu Dhabi’s sovereign wealth fund IPIC (International Petroleum Investment Company), was to slough off some of its international operations which did not fit any more from a strategic perspective.
Private ownership made it necessary but also simpler: ‘You had to reduce your footprint because certain business segments didn’t make sense. It’s much easier to change the name and new strategy and restructure in that environment [of being privately owned] than when you’re Julius Baer or UBS and you have fifteen reporters’ hanging around you.
Leemann says he has to be ‘diplomatic’ when describing the ‘nuclear environment’ of how AIG fell apart, but he does credit it with teaching him perhaps a surprising lesson: ‘The key learning is that the closest, the biggest, the best clients you have are the ones to leave you first in a crisis. And that’s OK.’ You let them go, he says, because you respect them — but they were also the first to return, ‘because they do appreciate the fact that in a crisis situation, the interests of the client come first, the safety of their assets comes first, and if you live up to it in extreme situations, that’s the proof of the pudding’.
Once the ship had been stabilised, it was time to sort out which ports it could dock at and which passengers it would accept. So, the strategic focus was narrowed to emerging markets and high-level private clients, offering a ‘solution-driven approach’. Better to concentrate on one type of person, says Leemann: ‘A client of an emerging market like Russia or the Middle East, Indonesia, you name it, has a totally different set of thinking from the UK-based client who inherited his £100 million in the fifth generation or a German Mittelstand guy or a French aristocrat.’
The different thinking is not an inherent national characteristic but a result of the fact that in emerging markets there is more wealth creation, whereas in developed markets there is more wealth preservation. Eastern Europe, for example, is being buoyed both by the trickle-down of Russia’s energy profits and by its own energy and real-estate industries, begetting more HNWs. The political uncertainty of these countries draws people to a Swiss bank, and the new wealth gives rise to new concerns about preservation, profit, custody. ‘That’s where the private banker fits in perfectly.’
There is a similar need in Falcon Private Bank’s owner’s back yard: the Middle East provides the bank’s fastest-growing group of clients. ‘It’s one of the reasons why our owners invested in our bank, because the Middle East is one of the biggest growth markets in the world.’
the secret formula
If one of the reasons clients go to Falcon is because of Swiss banking secrecy, are McCall and Leemann worried about the way the US is holding Switzerland by its ankles and shaking it until money falls out? Leemann instantly challenges the premise: ‘Number one, there is no secrecy in the world. If you think that people don’t know what your assets are, where you’re going, what you’re doing, it’s an illusion… If the Swiss banking secrecy, which is totally falling away, if that disappears, where else in the world do you think you’re going to find bank secrecy? Nowhere — it doesn’t exist any more.’ But privacy, that favoured distinction of wealth managers, is ‘a very, very important thing’.
Governments don’t even like that distinction, one can protest. ‘There’s one thing the governments are interested in — that everybody pays their fair share of taxes, whatever that is. We’re going to move and the ideal model is that in an area where everybody pays his fair taxes, no question about that, the Swiss banks will be the first movers in there — they’ll ask you about it, then you’ll have to prove it. The privacy aspect should be maintained and I think that the Swiss banking industry will do the utmost to maintain that.’ So Leemann foresees a future where, once money has been proved to be legitimate, it will retain its privacy. This does, of course, imply a massive shake-out of illicit money before then.
But how are the Swiss going to survive the shake-out, as embodied in America’s FATCA legislation and other countries’ disclosure treaties? ‘We have to make sure as Swiss banks that we live up to the promise of the world which we are making now, not to take any tax-neutral money.’
Switzerland is only the first target, anyway: ‘They’re going to go to the Caymans, Bahamas, Singapore. I think that the world overestimates grossly how many non-taxable assets lie in Swiss banks.’ Even Singapore, which many regard as the sole secrecy jurisdiction left, has a ‘pretty straightforward’ regulator, which is now demanding compliance of cash or closure of accounts.
What is also straightforward, says Leemann, is the confidence Falcon Private Bank’s clients have in its financial stability: the sovereign wealth fund has $627 billion standing behind it. Abu Dhabi is ‘one of the richest countries in the world, it is one of the politically most stable countries in the world, it’s recognised as a very solid business partner, they’re recognised as good investors with unlimited funding — whatever “unlimited” means.’ It clearly means a lot to Falcon’s clients.
For more information, go to falconpb.com