Family-controlled banks Pictet and Lombard Odier have left behind a dated corporate structure by transitioning from an unlimited to a limited liability partnership, a family wealth lawyer says.
Last week both banks released their financial data for the first time in their more than 200-year-old histories – a requirement of their new partnership structures, which both changed from unlimited to limited liability in January this year.
Lombard Odier, founded in 1796, reported net profit of CHF62.5 million (€51.8 million), while Pictet, founded in 1805, saw profits of CHF203 million.
Chris Groves, partner at UK law firm Withers, says, in the past, unlimited liability structures were a source of comfort for people who had money in a bank, because it showed the owners were standing behind their company.
But he says today customers get that reassurance from the regulators.
Under an unlimited liability structure, if a bank goes bust customers can seek to recover any money lost direct from the controlling family.
“No one would set up a bank like that anymore because I don't think it would have the same advantages. People now take more comfort from the regulation that is imposed upon banks and their capital requirements,” Groves says.
Pictet and Lombard Odier's holding structures are now liable for their activities.
In February 2013, Swiss private bank Wegelin collapsed after US authorities accused it of helping US taxpayers hide more than $1.2 billion (€914 million) in offshore accounts. Due to its unlimited liability structure, partners in the firm were personally responsible for paying back $58 million to the US.
“There's been a lot of pressure on Swiss banks over the last few years, especially Americans cracking down on undeclared assets,” Groves says. “That might have concentrated the mind of these people who had unlimited liability, whereas for years they might have thought it was an academic thing, it was never going to be a problem in practice.”
In the UK, Groves says family-owned Hoares & Co, founded in 1672, is the only bank he can think of that still has its unlimited liability structure. “I think they very much see that has an advantage in marketing terms now, because it brings in tradition, but also that the family can say its standing right behind its bank.”
In a statement released Thursday, Lombard Odier managing partner Patrick Odier said the results, for the period to 30 June, were in line with expectations and reflected the “conservative use of our balance sheet”.
The bank has assets under management of CHF156 billion.
Meanwhile, Pictet, which has CHF404 billion assets under management, attributed its results to its private ownership.
Jacques de Saussure, senior managing partner at the bank, said in a statement: "Our financial solidity, along with the ability to set our own business strategy without pressure from external shareholders or creditors, go hand in hand with independence of mind, exacting risk management and freedom from the temptations of short-term fashion.”