|The Bahamas Investor Magazine
July 3, 2008
July 3, 2008
In investment terms these are stormy times. However, offshore havens such as The Bahamas, with its client base of high-net-worth individuals and long-term investment strategies, provide relative shelter for private banks.
“We’re suffering with the markets,” says Laurent Colli, head of private banking for Lombard Odier Darier Hentsch Private Bank & Trust Ltd. “It’s a headache at the moment, but economically speaking, it hasn’t affected us yet and I don’t think it will. We have high-net-worth to super-high-net-worth individuals—their investments are long-term investments and they can sustain chaos for a long time.”
There are a number of factors that make The Bahamas so resilient in such times. It is no accident that many of the world’s top private banking institutions, including Credit Suisse, Pictet and Lombard Odier Darier Hentsch, to name but a few, have a 30-plus year history here.
Obviously there is geography. “We are well-positioned in terms of time zones and geographical area between North and South America,” says Christian Coquoz, managing director at Lombard Odier Darier Hentsch. “It’s a good alternative to the typical [financial] centres in Europe.”
Bertrand Zimmermann, executive director of Julius Baer Bank & Trust (Bahamas) Ltd notes that in terms of offshore banking, “on the western side of the globe, there is no other option. The Bahamas is quite close to the United States and it’s not lost in the middle of the Caribbean.”
For private banks and other international financial institutions that call The Bahamas a “home away from home”, geography is not the only selling point. Legislation governing and protecting the financial services sector plays an important part in maintaining the presence of The Bahamas’ number two industry behind tourism.
“We have very modern and efficient legislation,” says Coquoz. “If you look at most of the laws impacting financial services, they are less than seven years old.”
In late 2003, the Investment Funds Act was relaunched to pave the way for legislative initiatives to provide products in keeping with the international marketplace. This act was then followed by the Purpose Trust Act, Segregated Accounts Company Act, Foundations Act, amendments to the Perpetuities Act and enhancements to the International Business Companies Act.
There are numerous organizations to assist private banking and other areas of the financial services sector by way of legislation, transactions and product development promotion. Chief among these is the Bahamas Financial Services Board (BFSB), which was established in 1998, and works in partnership with The Bahamas government.
Zimmermann credits the BFSB with its work in promoting The Bahamas as a leading international finance centre (IFC). “The country has a good image—Wendy Warren and the Bahamas Financial Services Board are doing a good job with this,” he says, noting that Julius Baer is a BFSB member. “We have everything in place to do private banking within the international rules … we are in good shape.”
However, The Bahamas’ offshore banking industry was not always held in such high regard. Before legislation was tightened up to today’s standards, The Bahamas, and other offshore banking jurisdictions, were held under scrutiny by the Organisation for Economic Co-operation and Development (OECD) for issues such as money laundering. To remove itself from the OECD’s list of non-cooperative jurisdictions, The Bahamas introduced legislation, namely the Money Laundering (Proceeds of Crime) Act in 1996, which legally recognized money laundering as a crime. Although extra regulatory costs on the financial sector resulted from the passing of the new legislation, it did not constrain the country’s financial services.
Government support has also played a key role in protecting the interests of the private banking sector, says Coquoz, adding that last year’s transition from the Progressive Liberal Party to the Free National Movement resulted in a smooth transition. “The government is very supportive to the financial services sector. There was a continuity when [the country] changed from one government to the other … it was very important for us and our clients.”
Small yet highly efficient
Another reason why some of the world’s top financial institutions choose The Bahamas to add to their location portfolios is the country’s skilled workforce. “We have a great reservoir of human resources in terms of quality of expertise and in terms of numbers,” says Coquoz.
Lombard Odier Darier Hentsch, which opened its Nassau office in 1979, employs 29 staff comprising Bahamians and expatriates. “We’re able to build a nice team of Bahamians and expatriates for the business we want to do and the people we cater to,” says Laurent Colli, the firm’s head of private banking. “This is a really important factor. There is always someone who knows the client and this is something we are really proud of.”
Although a staff of 29 is small compared to that of larger institutions such as UBS or HSBC, Coquoz and Colli maintain that a small staff only enhances the personalized service expected from their private banking clientele. “We’re not a ‘product’ firm,” explains Colli. “We ask them [the client] questions, see what they would like and we make a product fit, if need be. There is a pretty big difference in our approach [compared to] the major firms. The idea is we tailor-make for our clients—we don’t have ‘one-size-fits-all’ products.
“Wealth management is the key—not only asset management. We take care and manage the relationship with the client [and/or] with their family. It’s not uncommon to have a relationship last through four or five generations.”
At Julius Baer, which took over operations from Ferrier Lullin in May 2006, there is a staff of about 25 people, most of whom are Bahamian. Zimmermann explains that Bahamian staff are usually sent for training at Julius Baer’s branches in Switzerland to update their private banking skills, establish connections with domestic Julius Baer staff and experience European culture. “To understand our clients’ needs, you need to have travelled,” he says.
Although The Bahamas is a relatively small IFC, its private banking clients are, by and large, extensively international. “Our clients are mainly from Europe and Latin America,” says Zimmermann, who notes that Julius Baer’s Nassau office includes German, Spanish, Italian and French desks.
“People here [in Nassau] are more international,” adds Lombard Odier’s Colli. “It’s not uncommon to have a family spread out throughout the planet nowadays. [Private banking] has been spreading out across the world—we’re in Asia, Europe, the Caribbean and North America.”
Just as the private banking sector continues to grow worldwide, expansion is also in the cards for private banks in The Bahamas.
“Our plan is to expand and reach out to more people,” says Colli. “Our goal is to become a place of reference and maintain ourselves as a place of interest.”
“It’s up to us in terms of attracting potentially new clients,” adds Coquoz. “Obviously we don’t have the UBS, Credit Suisse or HSBC name so we don’t have walk-in clients. The vast majority are referrals which is good for us because it’s proof we’re doing a good job.”
Like Lombard Odier Darier Hentsch, Julius Baer also includes expansion plans in its forecast. “We are not as big here as say (our offices) in Singapore because it’s a different scenario,” says Zimmermann. “In Singapore we had roughly 50 people two years ago, now it has grown to 200. Here we expect to grow more slightly, however we plan to double the assets under management by the end of 2009.”
Other banking firms have forecast growth through acquisitions. For instance, RBC Royal Bank of Canada acquired a 50 per cent interest in Fidelity Merchant Bank & Trust Ltd, The Bahamas-based subsidiary of Fidelity Bank & Trust International Ltd. This resulted in the formation of Royal Fidelity Merchant Bank & Trust Ltd, with operations in The Bahamas and Barbados.
Credit Agricole (Suisse) SA, a subsidiary of the Geneva-based Credit Agricole Group, announced in late November 2007 that it acquired aggregate shares of National Bank of Canada (International) Ltd, a subsidiary of National Bank of Canada located in Nassau.
“This acquisition fits perfectly with the global strategy we have been pursuing over the last number of years to develop our private banking business,” explains Christophe Gancel of Credit Agricole (Suisse) SA. “It also adds to and enhances our product and service line and enables us to meet our clients’ needs directly. The transaction strengthens our presence in The Bahamas, which is a major base for our private banking operations and a place where we have been active since 2001.”
Brazilian-based Banco Itau Europa and Banco Itau Europa Luxembourg also expanded their operations with the May 2006 acquisition of BankBoston Trust Company Ltd (BBT) in Nassau and BankBoston International in Miami.
This confidence in the jurisdiction is well-founded, a fact reflected by the overall strength of the financial services industry. According to The Central Bank of The Bahamas, as of 2007, 247 banks and trusts companies are licensed to do business here, with Nassau ranking among the top 10 offshore jurisdictions worldwide and is the leading offshore banking centre in not only the Caribbean region, but also in North and South America. This year, The Bahamas earned its first-ever ranking on the Global Financial Centres Index, a respected British list of the world’s top 50 financial centres that measures the relative strengths of international banking centres, including business environment, staff skill level, infrastructure, market access and competitiveness. So despite the current downturn, private banking in The Bahamas is equipped to weather the storm.