1. Private Banking in Geneva A Cluster Analysis Group 1: Kahina El Hajji, Alexandra Megally, Laurel Nelson, Harith Soysa
Source OECD 2010

2. Agenda Introduction Country Analysis Private Banking Cluster in Geneva
Switzerland at a glance
Factor conditions of success
Swiss Financial Center
Private Banking Cluster in Geneva
Legacy
Cluster Map
Diamond Model
Global Issues
Recommendations

3. Composition of the Economy
Switzerland has no mineral resources and a restricted surface area. Its wealth depends on foreign trade...
Area and Demographics
Area
41285 km²
Population
over 7,785,800
GDP/ rate
US $ 500,26 billion- 3,10%
GDP/Capita
US $
Median Age
41.7 years
Languages
French, Italian, Swiss-German
Map of Switzerland
Composition of the Economy
Trade Balance
Source OECD 2010
Dependence on trade
Switzerland has virtually no mineral resources and a restricted surface area. It depends for its wealth on foreign trade.
The relatively small size of its domestic market - a total population of just over 7,785,800 - is another factor which has encouraged Swiss manufacturers to look abroad: they need foreign markets in order to make investment in research and development worthwhile.
Switzerland imports bulky raw materials and exports high-quality goods. In 2003 the value of one tonne of exported goods was two and a quarter times more than that of the same amount of imports.
Switzerland Balance of Trade
Switzerland reported a trade surplus equivalent to 1.96 Billion CHF in January of Trade has been the key to prosperity in Switzerland. Switzerland's annual trade balance is habitually in arrears, owing to the economy's reliance on large quantities of imported raw materials for industry. Swiss main exports are: medicinal and pharmaceutical products, watches and clocks, machinery for special industry and tools. The country imports mostly machinery, chemicals, vehicles, metals; agricultural products and textiles. European Union is by far its largest trading partner accounting for about 62% of exports and 79% of imports. This page includes: Switzerland Balance of Trade chart, historical data and news.
Private Banking Geneva

4. Swiss Economic Indicators
Unemployment rate: total civilian labor force %
Gross Domestic Product (GDP) Billion USD currents PPPs
Inflation rate all items, Annual Growth %
Source OECD 2010
Exchange rates CHF per USD
Swiss companies are extremely competitive in world markets. In some branches, more than 90% of goods and services are exported. The best-known export items are watches, chocolate and cheese, but in fact mechanical and electrical engineering and chemicals together account for over half Swiss export revenues.
Consultancy, insurance and tourism are also part of the export trade. Exports of goods and services alone amount to about 25,000 francs - 16,000 dollars - per head per year, according to the OSEC business network, which promotes Swiss foreign trade.
Switzerland's main trading partners are European Union members. By far the biggest partner is Germany. In 2010 it was followed in descending order by Italy, France, the Netherlands, the US and the United Kingdom. In 2009, 59.7% of exports went to EU countries, and 78% of the imports came from EU states. This is despite the fact that the Swiss have consistently voted to remain outside the body.
Swiss economic policy has always been based on free trade, with low import duties and virtually no import quotas - the only exception being for agricultural produce. Even here many of the restrictions are being eased as a result of recent agreements with the EU.
Private Banking Geneva

5. Competitiveness of Switzerland
Switzerland has “an excellent capacity for innovation” and a “very sophisticated business culture” – categories where it ranked 2nd and 4th out of 139 countries had “an excellent capacity for innovation” and a “very sophisticated
Global Competitiveness Report
Swiss companies are extremely competitive in world markets. In some branches, more than 90% of goods and services are exported. The best-known export items are watches, chocolate and cheese, but in fact mechanical and electrical engineering and chemicals together account for over half Swiss export revenues.
Consultancy, insurance and tourism are also part of the export trade. Exports of goods and services alone amount to about 25,000 francs - 16,000 dollars - per head per year, according to the OSEC business network, which promotes Swiss foreign trade.
Switzerland's main trading partners are European Union members. By far the biggest partner is Germany. In 2010 it was followed in descending order by Italy, France, the Netherlands, the US and the United Kingdom. In 2009, 59.7% of exports went to EU countries, and 78% of the imports came from EU states. This is despite the fact that the Swiss have consistently voted to remain outside the body.
Swiss economic policy has always been based on free trade, with low import duties and virtually no import quotas - the only exception being for agricultural produce. Even here many of the restrictions are being eased as a result of recent agreements with the EU.
Private Banking Geneva

6. Switzerland Analysis Monetary Policy Political conditions
Stable government and neutrality
Divided into Federations, Cantons, Communes
Dynamic: the Referendum laws
Local laws are more powerful
Direct democracy
Bank secrecy and heritage
Swiss Banking Act of 1934
Experience and heritage of several centuries make these institutes unique for providing tailor-made financial service to wealthy customers.
Swiss financial center is perceived as a safe haven for money seeking home
High quality advice and operational conditions at the forefront of international private banking
Excellent specialist expertise that boosts confidence in the whole financial market
Monetary Policy
The CHF is a minor currency but it is stable and independent from the Eurozone
The revised National Bank Act of 2004 stipulates that the SNB is to ensure the stability of the financial system and the FINMA ensures an effective supervision of banks

7. Switzerland Analysis Economy
Exports of goods and services are extremely competitive
More than 90% of goods and services are exported: watches, chocolate and cheese,
Mechanical and electrical engineering and chemicals together account for over 50% of Swiss export revenues.
Consultancy, insurance and tourism are also part of the export trade.
Switzerland's main trading partners are European Union members. (Germany).
In 2009, 59.7% of exports went to EU countries, and 78% of the imports came from EU states.
Swiss economic policy is based on free trade, with low import duties and virtually no import quotas - the only exception being for agricultural products.
Headquarters of major MCN, Nestlé ad 15 Swiss firms, including the pharmaceutical giant Novartis (No. 160) featured on the “Fortune Global 500”

8. The Swiss financial center is a central pillar of the Swiss economy
It generates over 11% of Swiss GDP and represents 6% of Switzerland’s total working population (banks, insurance companies and other financial institutions) in 2009
Switzerland’s financial center has three main hubs - Zurich, Geneva and Lugano.
The key players in the Swiss financial center are the banks:
Core businesses is asset management
The 3rd largest financial market after the US and the UK, but ranks first in Wealth Management
The volume of assets under management is about 10% of worldwide AuM
Source: Boston Consulting Group 2007
Share of assets under management in international private banking end of 2007
Switzerland
27%
United Kingdom
24%
Luxembourg
14%
Singapore 7%
United States
Hong Kong 3%
Others 6%

9. Private banking is a centuries-long tradition in Switzerland
Private banking is a centuries-long tradition in Switzerland. The first recorded private bank dates back to the 17th century..
1387
Residents of Geneva allowed to lend money against interest
14th & 15th Centuries
Traders became bankers
17th Century
Geneva’s bankers financed Dutch West Indies Company and Royal Bank of England
19th Century
Geneva’s bankers financed railway companies and issued public loans
1857
Oldest stock exchange in Switzerland opens in Geneva
20th Century
Banks moved towards asset management
Pictet Asset Management, Ltd
Jacques Necker, Geneva banker (1732 – 1804)

10. In Switzerland, the term "private banker" refers to a specific definition in the Swiss Banking Law
Jean Gédéon Lombard Henri Hentsch
Thierry Lombard
Christophe Hentsch
The two founders and their heirs – current managing partners of Lombard Odier
Specific status of “private banker” – justified by the presence within the bank of at least one partner with unlimited liability for the bank's commitments.
If the bank goes bankrupt, the partner with unlimited liability could lose their entire private fortune.
The expression “private banker” evokes images of free enterprise, independent personalities, long-standing tradition, discretion, an open attitude and above all, the mastery of a profession: asset management and securities trading.
It is not easy to describe the characteristics of these multifaceted personalities who are conservative yet progressive, steeped in tradition yet unconventional.
Source: swissprivatebankers.com
This expression is often confronted with the looser term of "private bank", now frequently used in everyday language to describe banks - usually organized as limited companies - whose main activity is asset management, also referred to as "private banking".
The forms chosen by the private bankers for their companies: sole ownership or partnership, share symbolizes the banker's unlimited liability, his total commitment to the company, at the heart of which lie his clients and their interests.
Private Banking Geneva

11. Geneva Private Banking Cluster Map
Business Regulation
Bank of International Settlements
1934 Banking Secrecy Laws “Bankgeheimnis”
Local Association
“Finanzplatz Genf”,
Groupement des Banquiers Privés Genevois, FINMA
Geneva Private Banking
5 leading Geneva-based private banks Bordier & Cie, Lombard Odier Darier Hentsch & Cie, Mirabaud & Cie, Pictet & Cie
Financial Services
Traditional service and sophisticated investment Mutual funds, Hedge Funds, Private Equity, Venture Capital, Insurance, Trade flows
Educational, Transfer of Resources
FAME, HEI, 26 Finance and Technology Companies to train advances banking specialist
Institute for Banking at the Hoschschule St,Gallen
Luxury goods: Breguet, Patek Philippe, Richemont
Exclusive Tourism
High end Sports
Strong social/family ties
Cluster of Private Banks in Zurich and Basel
Swiss Insurance Industry

12. Factor Conditions General Factors Specialized factors
Location at the middle of Europe as an advantage in terms of reducing travel cost for clients
Proximity to famous tourist destinations in the Alps
Stable political system and neutrality
Specialized factors
Highly-skilled personal service, fluent in languages, well-versed in dealing with different cultures, traditionally risk-averse and respecting property
Advanced training and apprenticeship programs in banking
Legal system and business regulation: Swiss Bankgeheimnis (banking secrets) to attract investors wishing to avoid taxes at home
Tax evasion not considered as a crime in Swiss law
Legislative environment allowed emergence of the “universal banking” system
Initially under-developed Swiss telecom communication infrastructure led the industry to develop its own telecom infrastructure which later seems to have become an advantage on its own
Tax evasion not considered as a crime in Swiss law which prevent authorities from checking bank accounts and made Switzerland very attractive to foreign investors seeking to evade taxes at home while having no impact on the Geneva Cluster of private bank
Legislative environment allowed emergence of the “universal banking” system similar to Germany but unlike the case in the US and other countries where commercial and investment banking was legally separated,
Private Banking Geneva

13. Sophisticated Demand and Strong Links to Other Clusters
Sophisticated Demand as Advantage
Domestic and international private banking clients are very demanding and prefer low risks at the price of low returns
However, demands from foreign institutional investors who seek higher returns were less in line with Swiss locals resulting in Swiss demand conditions to be slight disadvantage for this segment
Benefits from highly specialized and expertise banking advice
Strong links to other greater Swiss banking clusters
Swiss insurance industry
70% of their global premium income is generated overseas
Swiss insurance companies have increasingly specialized in re-insurance, i.e. where an insurer insures other insurers, making Switzerland the fourth largest re-insurer in the world.
Swiss financial center is also a major international force in currency trading, commodity trading and the management of funds of hedge funds.
Competitive Swiss tourism industry feeds customers to Swiss private banking services
Sophisticated Demand
Domestic Customers (incl, foreign coming to Switzerland) are very demanding and prefer low risks at the price of low returns, this used to be also what international private banking clients requested and thus constituted an advantage; demands from foreign institutional investors which stressed higher returns were however, less in line with Swiss domestic resulting in Swiss demand conditions to be slight disadvantage for this segment
The second most important players are insurers. Close to 70% of their global premium income is generated overseas, indicating a high degree of internationalisation. Swiss insurance companies have increasingly specialised in re-insurance, i.e. where an insurer insures other insurers, making Switzerland the fourth largest re-insurer in the world.
The Swiss financial centre is also a major international force in currency trading, commodity trading and the management of funds of hedge funds. However, in other financial services, such as the funds business, institutional asset management, investment banking, as well as commerce and corporate banking, it continues to play only a minor role.
Private Banking Geneva

14. Context for Strategy & Rivalry
Vigorous competition among local companies drives innovation
With the evolution of the banking market, private bankers are facing ever stiffer competition from the major banks, which now offer similar services.
Cluster’s Economy is open to Foreign Direct Investment FDI
Strong presence of Foreign banks in Geneva (60 foreign-owned banks out of 140)
Cooperation
Firms cooperate and invest jointly to upgrade the cluster in Geneva
Finazplatz Genf Foundation,
International Center for FAME
The leading private banks in Geneva have been owned by the same families for hundreds of years. While being strong competitors, these families have strong social ties and know each other well.
Source: SNB, Banks in Switzerland, 2006–2009.

15. Global Issues : The 2008 global financial and economic crisis significantly shaped the last three years
The2008 Global Financial Crisis
With its long tradition of banking and finance, Switzerland coped better than many other financial centers, thanks to:
extreme heterogeneity of the Swiss banking industry
the stability of the Swiss franc
still a very attractive location for highly qualified financial experts to work
But over the last 10 Years
Swiss banking industry has consolidated from 372 institutions down to 325.
International competition for assets has stiffened correspondingly.
investors are seeking greater geographical diversification in their portfolios.
the rapid structural changes in financial services mean that a constant review and optimization of government regulation and supervisory instruments is required.
Tax Regulations
by adopting the OECD article 26 standard on information exchange in tax matters and entering into fresh negotiations about a final withholding tax, the Swiss financial center took a key step forward and has been efficiently implemented.
Some argue that Switzerland will not be as attractive as it used to be and investors may look for new financial centers overseas.
Union Bank of Switzerland
involved in so many international issues
Subprime crisis
Madoff case
Tax evasion with the US residents

16. Recommendation At the National Level For the Cluster
Harmonize the policies of the Cantons to avoid overlapping and competitions between them
Work on the centralized process to collect tax
Develop a culture of innovation through the universities and schools to retain talent
Develop the other clusters such as tourism to promote Green Tourism
Government should increase the presence of Foreign Banks which is a source of growth
Raise the Bank Regulatory Standard to avoid terrorist funds or widespread tax fraud
Attract innovative financial institutions such as hedge funds or private equity firms that are looking for new financial places
Opportunity to attract home manufacturing: most of the products are produced in Europe
Lower its labor barrier
Create a center of research for the finance industry
The Swiss federal government should actively pursue a national cluster policy
The Swiss federal government should actively pursue a national Cluster policy

17. Thank you for your attention
Questions & Answers
Thank you for your attention

18. Back Up slide
Source OECD 2010

19. Trade Exports of goods and services are extremely competitive
more than 90% of goods and services are exported: watches, chocolate and cheese,
however mechanical and electrical engineering and chemicals together account for over 50% of Swiss export revenues.
Consultancy, insurance and tourism are also part of the export trade.
Switzerland's main trading partners are European Union members. (Germany).
In 2009, 59.7% of exports went to EU countries, and 78% of the imports came from EU states.
Swiss economic policy has always been based on free trade, with low import duties and virtually no import quotas - the only exception being for agricultural produce.
Source OECD 2010

20. Key Sectors
Companies
Nestlé headquarters in Vevey, on Lake Geneva© Nestlé S.A.
Most businesses are small or medium-sized. According to the 2008 business census, more than 99% of enterprises had fewer than 250 full-time workers, employing about two-thirds of the total work force.
The largest company is Nestlé, the biggest food company in the world. It has around 278,000 employees, about 97% of them outside Switzerland (2009).
In 2010, 15 Swiss firms, including the pharmaceutical giant Novartis (No. 160) featured on the “Fortune Global 500”, an annual ranking of the 500 most powerful corporations which is compiled by the eponymous American business magazine.
Many companies are still in the hands of families who founded them. However, a survey conducted in 2002 showed the impact of globalisation on large firms: it found 40% of board members and 26% of managers were non-Swiss, mostly from Germany, the UK and France. However, there were still few foreign managers in medium and small businesses.
Source OECD 2010

21. The second most important players are insurers
The second most important players are insurers. Close to 70% of their global premium income is generated overseas, indicating a high degree of internationalisation. Swiss insurance companies have increasingly specialised in re-insurance, i.e. where an insurer insures other insurers, making Switzerland the fourth largest re-insurer in the world.
The Swiss financial centre is also a major international force in currency trading, commodity trading and the management of funds of hedge funds. However, in other financial services, such as the funds business, institutional asset management, investment banking, as well as commerce and corporate banking, it continues to play only a minor role.
Source OECD 2010

22. Source OECD 2010