A Dragon with Three Wings
Swiss subsidiaries of foreign banks have long been considered a thing of the past. Now, Banque Internationale à Luxembourg (BIL) is emerging with a bold 80 million Franc investment. With its Chinese majority shareholder, it is pressing for growth.
The Swiss banking sector has been going through rough times. One of the predominantly affected segments have been foreign banks (Auslandbanken), whose number collapsed from 122 in 2007 to 71 in 2019, according to the Swiss National Bank. One of those banks, Banque Internationale à Luxembourg (BIL), is now emerging with a bold 80-million-investment, an aggressive growth strategy and a new business model. Its parent company, BIL in Luxembourg, is owned to 90% by the Chinese investment firm Legend Holdings, which also holds a significant stake in the tech company Lonovo, and to 10% by the Grand Duchy of Luxembourg.
Meet Hans-Peter Borgh, BIL’s new CEO since the beginning of the year. Before taking over in Zurich, he has been leading BIL’s wealth management in Luxembourg. Grown up in the Netherlands, Mr. Borgh embarked on a banking career at ABN Amro where he rose to the top ranks and spent 13 years of his career in Asia.
Weltwoche: Mr. Borgh, for the past ten years, BIL Suisse has been writing losses - as did many of the foreign-owned banks in Switzerland. What’s your plan to take the bank out of the woods?
Borgh: The way out of a loss-making situation towards sustainable profitable growth is revenue growth. That's what the focus is on. Of course, prudent cost management is also part of it. We went through a restructuring process throughout this year which became even more dynamic with the virus arriving.
Weltwoche: Over the last year, BIL laid off over 10% of the people.
Borgh: To invest in our future strategy, it was both necessary to realign our forces and to free up expenses, which translated in a significant staff restructuration
Weltwoche: What is that strategy?
Borgh: It is to focus primarily on internationally active entrepreneurs and their families. Our main emphasis are growth markets: China, which is logical given that we are ultimately owned by a major Chinese group, Eastern Europe and the Middle East. And we will continue to also serve European entrepreneurs who have cross border needs from Switzerland.
Weltwoche: How do you think BIL can make a difference for these entrepreneurs?
Borgh: With the combination of wealth management solutions and, if needed, corporate advisory, where we help the entrepreneurs across their private wealth and their liquidity needs on the business side. That includes very much focus on lending and credit for which we are using our balance sheet which has recently been reinforced locally with 80 million Swiss franc of capital injection.
Weltwoche: In terms of growth: Where do you want to be in five years from now?
Borgh: If represented by Assets under Management, our plan is to go from roughly 5 billion now to 10 billion in 5 years.
Weltwoche: How are you planning to achieve this growth?
Borgh: Our base plan is to grow organically. For that, recruitment of relationship managers is very important. This year, we are on track to recruit more than 10 relationship managers which given our size is massive. I'm convinced that we will start to see a flying wheel effect, and we'll be able to attract more in years to come. Along the way, it would be helpful to at least be able to make one or two smaller acquisitions.
Weltwoche: What kind of acquisitions are you looking at?
Borgh: Any opportunity needs to contribute, predominantly through the growth markets that I mentioned. Ideally, it would also be additive to the skills and the capabilities in terms of serving the entrepreneurs. That could mean more significant acquisitions of banks of similar size of ours, but also smaller acquisitions of banks or asset managers who could help us to achieve that goal. But we will always be prudent. As a group, we are ultimately ECB supervised as a systemically important bank in Luxembourg. We adhere to the highest standards when it comes to anti money laundering, capital and so on. Hence we will be mindful not to increase our risk profile through acquisitions.
Weltwoche: Why is BIL investing heavily in Switzerland and not in another jurisdiction?
Borgh: Serving clients from outside the EU, Switzerland is still number one in the world. That suits our ambition to internationalize the group and also look east - predominantly into China. Key expectations of the clients that we are trying to serve are high-quality services, speed, and some flexibility. In a way, our size actually becomes an advantage because we are small enough to care and big enough to matter, also in terms of organization strength, balance sheet, support of the Luxembourg bank behind us and ultimately the shareholders. The board and our shareholders believe in Switzerland as a country.
Weltwoche: So BIL is committed to Switzerland?
Borgh: BIL is definitely committed to Switzerland. In 2019, BIL Suisse received a capital injection of 80 million Swiss francs to support our growth. And this commitment is also demonstrated in my own role. I've been appointed the CEO of the Swiss entity, but I remain on the group executive committee as the group head of international Business. As such, I have the responsibility to build our International business including China. By combining these two responsibilities in one role, it also cements Switzerland's position.
Weltwoche: BIL is also doing onshore banking in China, where you managed to get a representative office in less than six months.
Borgh: That was very quick. But to be precise: It's not a representative office of BIL Suisse, it's a representative office of BIL in Luxembourg.
Weltwoche: What are the specific advantages of this triangular relationship between Switzerland, Luxembourg and China?
Borgh: In a way we are a twin hub, combining the two leading wealth management centers. We are the only major Luxembourgish bank with a significant presence in Switzerland. Both countries bring stability. Both countries are AAA rated. They are very well regulated to offer peace of mind to clients. However, the focus of Luxembourg and Switzerland as a financial center differs. Switzerland is the number one in wealth management with a unique ecosystem of intermediaries who serve wealthy entrepreneurs and family offices. Luxembourg offers unique capabilities in asset servicing, in structuring, in funds and all you need for wealth management in Europe. BIL brings those Luxembourgish unique solutions at the doorstep of Geneva, Zurich, and Lugano - financial centers that are relevant to our target clients.
Weltwoche: What role does technology play for BIL Suisse?
Borgh: We are investing to get the basics right, but we will not become a pure digital bank. For the kind of clients that BIL focuses on, it's ultimately that the quality of the client experience is determined by service, by speed, by flexibility, and the ability to deal with complex situations relatively quickly and deliver on what the client is looking for. We compete in our niche, rather than in the mainstream of banking.
Weltwoche: Two of the leading technology platform providers in banking are Swiss: Avaloq and Temenos. You’re on Avaloq.
Borgh: Currently BIL Suisse is on Avaloq, the bank in Luxembourg will move to Temenos. But currently we are evaluating the best upgrade solutions for our ambitions in Switzerland.
Weltwoche: Your majority shareholder with 90% is Legend Holdings, a Chinese investment group. What strategic opportunities does this give you aside from the huge investment that you mentioned?
Borgh: The ecosystem around Legend Holdings is very active in the Chinese economy and actively supporting entrepreneurs in growing businesses. For a private bank that is focused on entrepreneurs and seeking to grow in China, that is a huge help in terms of connections and in terms of potential introductions. In addition, in terms of guidance on our strategy, we benefit from the deep insight and deep expertise of such a prominent and well-established Chinese group. Legend Holdings is not involved In the daily activity of the bank.
Weltwoche: Talking from a perspective of your non-Chinese clients: Are you aiming to facilitate their access to the Chinese capital market, e.g. in the context of IPOs?
Borgh: Absolutely. As an example, we are now facing the IPO of ANT Financial, a spin-off of Alibaba. It is probably the hottest IPO in the world of 2020. We see a very meaningful interest from European clients to take part in it. It will be very difficult to achieve an allocation of the shares because the IPO is likely many, many times oversubscribed. I can't say today that we will be able to serve our clients with these shares. But our position is advantaged. If you pick up the phone as BIL being part of Legend Holdings, you are supported by warm connections. We hope to be able to translate that into real benefits for our clients.
Weltwoche: Chinese foreign direct investment is always discussed a bit controversially. Do you see any political dimension to Legend Holding’s investment, or is it purely business-driven?
Borgh: In my experience, it is a pure business relationship. There have been no political elements at all. Legend Holdings is a private sector enterprise in China. As I said before, in terms of running off bank, there is no involvement or interference. At the strategic level we are fruitfully engaged with our majority shareholder, but without any political connotation.
Weltwoche: You have been in Switzerland for ABN Amro in the early 2000s, which was the high time of private banking. How optimistic are you about the future of BIL in Switzerland?
Borgh: Looking forward, I am happy for BIL to make a positive contribution to the banking sector in Switzerland. I am convinced that with the hiring of relationship managers, potential selective acquisitions and massive investments into our platform, we will start to see a flying wheel effect, and we'll be able to build a highly successful franchise here in Switzerland.