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Mergers & Acquisitions: An Attractive Option for Dynamic Private

By Ray Soudah, Founder MilleniumAssociates AG, the only Swiss based independent M&A advisory firm to the global industry.

Growth through mergers and acquisitions is lured by attractive sounding products or favourable definitely an attractive option for dynamic private projected investment returns. banks, but confidence in the strength, ongoing There are at least three important characteristics commitment and trustworthiness of Private Banks of a sound private : its strength, its ongoing are really the key requirements for Private commitment to the industry and its trustworthiness. Investors seeking a safe place for their assets. All three features are individually and collectively relevant when selecting a “sound” institution.

Security is as important as Strength investment performance Taking them individually, analysis is rather easy to In addition to estimating their investment performance, perform for the private investor contemplating which a key if not the key question often asked by to choose for his assets.“Strength” normally investors is “Is my money safe and can I trust the refers to the capital strength of a bank. In particular: bank with whom I have placed my investments when does it have sufficient capital and reserves to meet its something goes wrong in the bank or when my obligations in the eyes of the regulators; does it have beneficiaries need to benefit from my savings, etc ?” sufficient liquidity to respond to instant client liquidity In and many other financial centres, there needs; can it absorb losses without curtailing its are a large number of private banks or asset managers business and client services when troubles occur? providing investment services to private investors Capital strength applies not only to the clients’ direct originating from many parts of the world. Although private banks, but, in the cases where these are Switzerland as a nation itself automatically induces subsidiaries, to the strength of their parent companies. an image of security and safety within its significant Adequate capitalisation and liquidity at all levels are financial industry, investors are well advised to paramount in case of parent or subsidiary default. ascertain adequate information about their private Ascertaining the adequacy of a bank's capital is also banks before entrusting their funds, and should not be achievable by taking a view on the various regulators

5 services used by its private clients depending on the degree that they are sourced or supplied by other parts of the bank or group. Has the bank opened and closed many offices, has the bank hired and fired personnel easily each time the market cycle went against them, has the bank increased its pricing dramatically every time its profitability was threatened, has the bank kept up to date with product innovations and services, etc? The answers to these questions give information on the commitment of the bank versus its industry and clients. Furthermore, a judgement over time can be made as to the history of commitment in order to reasonably predict the likelihood of ongoing commitment in the longer term. Equally important is the continuity factor, especially when it comes to the clients’ interface with its private bank. Is the relationship officer on the account for a considerable overseeing the bank or its subsidiaries, as regulators period or is the bank always changing the people in the modern age of transparency are increasingly responsible for a client’s business relationship? Similarly, vigorous in their requirements that banks demonstrate the involvement of senior management in dealing with adequate and often even surplus capital resources at clients issues will also signal the bank’s commitment to all levels and in all vehicles wherever they operate. its clients. Some clients only know junior persons at An established regulator is unlikely to countenance their banks and then rarely meet the seniors a poorly capitalised bank. Another risk factor in the responsible. capital adequacy of banks is their other non- activities which could result in financial losses or litigation claims. If a private bank or its group is Trustworthiness prone to losses in other fields, one would be well advised to be confident of that bank’s resources as A private bank is, after all, handling one of the most capital is often used twice or several times to back up precious assets a client has, his hard earned money, various banking activities, especially as private banking and a client must feel he can “trust” his or her bank. normally is a small consumer of quality capital Defining trust is a variable challenge depending on a resources. large number of factors and incidents. Most people trust others through their reputations or through actual experiences or both. Good and regular Commitment communication, full information and detailed understanding of objectives between client and bank How to ascertain a private bank's “commitment” to its are the most likely way to minimise mistrust and industry and clients is rather challenging. One would increase confidence between the parties. How the have to review the history of the bank in terms parties behave: fairly, rapidly when needed, honestly, of its continued presence in certain key markets or with due care, and also legally at all times, all are countries, its global strategy in terms of the relative factors which create deep trust. A client who doesn’t importance of its private banking franchise to its trust his bank is likely to remove his business unless overall revenues and the interrelationship of the there is a difficulty surrounding his affairs or unless he

6 feels all bankers’ services are equally inferior. Good levels of trust often are vital when difficulties emerge and when trust takes dominance in healing and also in permitting special events or needs to be handled smoothly and carefully. Most clients say trust is towards persons not institutions; however, persons make up institutions and their collective culture results in clients being able to describe their bank as an institution that “can be trusted”. Once in a while, every client will be disappointed by his/her private bank for a variety of reasons, but where there is trust the client is likely to be loyal and increase his activity with that bank.

The author Growth through Mergers and Ray Soudah, Founder MilleniumAssociates AG Acquisitions Ray Soudah is a Harvard Business School & INSEAD Alumnus. He has a long and prominent background in As with most industries, the financial industry and . From 1970-1984, he held various senior the private banking industry itself within it are not positions within Citigroup; lastly Head of Asia Pacific Treasury immune from the temptations and advantages of and Capital Markets. From 1984-1992, he worked for the Midland Montagu as CEO of Hong growth through mergers or acquisitions. Achieving Kong, CEO of Japan, Head of Global Capital Markets office scale, greater geographic representation, or acquiring () and head of FIG, and MD/CEO of Midland Montagu Securities. From 1992-1994, Ray became Chief Investment Officer for the of Bahrain and Private clients should admire those Head of International Banking and Private Banking. From 1994-1998, he became Chief Investment Officer and Chief banks that have grown and will grow Financial Officer and member of the Executive Board Cedel through M&A. Bank (created same)/ renamed Clearstream. Subsequently from May 1998 to April 2000 Ray was a Managing Director and member of the Private Banking Management Board for additional product skills are often cited as cause UBS AG.There he created and led the corporate strategic acquisition and development team in Wealth for acquisitions; even acting opportunistically is Management/Private Banking. frequently cited as a justification for doing M&A. In May 2000, Ray founded MilleniumAssociates AG, Private banking M&A is in the ascendancy as banks or specialising in independent M&A advice for the Wealth their shareholders deem the need to merge even more Management Industry. He takes an advisory role in deal after the recent bear markets of 2001/2002, and the initiation/origination, negotiation/closing, integration and trend is likely to accelerate in the years ahead. Private team management on a global basis. Focus is on the clients should admire those banks that have grown and financial institutions sector and in particular the wealth and asset management industry. will grow through M&A. Nevertheless, they will be well advised to ensure that the banks they are banking Ray has a network of contacts of buyers, sellers and with, albeit larger private banks, possess the three investors in Europe, Middle East,Asia, Japan, and United States. essential qualities of Strength, Commitment and Trustworthiness. He has multicultural, multilingual Wealth Management and private banking/investment banking expertise. He speaks English, French, Greek and Japanese.

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