|The Bahamas Investor Magazine
February 16, 2019
February 16, 2019
With the purchase of an 85 per cent majority interest in Private Investment Bank (PIB) Ltd from Banque Cramer and Cie SA, Nassau-based IPG Securities Asset Management Ltd is writing the first chapter in a new and exciting era for international private banking in The Bahamas. Carlos Molina and Jorge Carreras, IPG’s founding partners, say that through the use of an innovative and unique on-boarding system, the bank can introduce a new value proposition to high- net-worth individuals and reach untapped potential globally. Molina explains their thinking:
Q: What attracted you to set up in The Bahamas?
A: In 2007, when Carreras and I were working for Merrill Lynch, we were approached by Morgan Stanley. We realized that the two banks did not have the same private banking platforms, which would make it very difficult to transfer our book of business seamlessly. We had many loans, hedge funds, funds of funds, which could not be held on Morgan Stanley’s US platform. The bank suggested we visit Morgan Stanley Banque Suisse in Zurich, since Swiss banks have more flexible systems.
Morgan Stanley offered to transfer all our assets to Switzerland and manage them from New York through a Limited Power of Attorney. When we combined Switzerland’s robust and flexible banking structure, together with New York’s dynamic private banking sector, it was the best of both worlds and our growth was tremendous. Of course, this all ended in 2008 with the crash. However, I still believe that a Swiss-NY combination is perfect for private banking and that is what we are now trying to do in The Bahamas.
PIB was a subsidiary of a Swiss bank, hence it is a Swiss bank at its core. Now it is our job to combine that with the NYC mentality of dynamic private banking and put us in a position to hopefully one day compete with both Swiss banks and US banks for international private banking clients from our base in The Bahamas.
Q: What are the main advantages for your clients?
A: In the US, international private banking clients who want to hold assets in different currencies, hedge foreign exchange, pledge assets to get a loan, trade derivatives, and so on, need multiple accounts, complex reconciliation, and have to sign hundreds of contracts. In a Swiss account, all of this can be done in one single account and be easily consolidated and accessed. Banking in Switzerland, although changing slowly, has been about confidentiality, high pricing, personalized elegant service, but not about investing and performance. This is the opposite of what the US private banking has always tried to offer. Once we restructure our bank, our clients will be able to have both in a stable, compliant and legally sound jurisdiction.
Q: How easy has it been to invest and do business in The Bahamas?
A: Although in our case this was a long acquisition process, we have found The Bahamas very welcoming to outside investors and in particular to our business model and mentality. PIB is no longer a Swiss bank, but a Bahamas bank willing to compete outside of the country.
I think that The Bahamas is doing the right things to facilitate outside investment and is also developing its legal and regulatory framework in the right direction. The Central Bank of The Bahamas has realized that, as more independent banks remain, it is becoming a more involved regulator and it has put the right team in place to assure investors and depositors that The Bahamas is not a harbour for non-tax compliant money, and to promote transparency and a sound financial system.
Q: How is The Bahamas regarded among the high-net-worth community?
A: I think The Bahamas as a financial centre is very well known, not only in Latin America, but around the world. Unfortunately there is one big misconception that we must work to change: The fact that in The Bahamas there is no income tax for residents or companies does not mean that it is a tax haven for the rest of the world. The participation in the common reporting standard (CRS) is a great step for the country and I hope transparency continues and The Bahamas gains a reputation for service, performance and efficiency.
Q: How do you see the financial sector developing in The Bahamas?
A: I don’t think this is a job for the country, but for each individual bank. The Bahamas is doing the right thing by strengthening its regulatory framework, being part of CRS, Basel, etc. Now it is the job of the financial sector to go out there and show how efficient and dynamic a Bahamian bank can be. I think there is going to be some more consolidation and more foreign investors coming into participate.
Q: What role do you think technology will play in the development of The Bahamas as an IFC?
A: I think that technology is playing an extremely important role in the banking industry in general and we have seen regulators and the government put a lot of effort into welcoming the technology sector. However, I believe that it is the responsibility of banks to invest in new technologies to keep up the pace with what the US and Europe are doing to automate processes and make banks more efficient.
This is why we are making a major investment in technology at the bank. One of the most complex and cumbersome areas in international private banking is how difficult it is on- boarding new accounts. It can take more than 30-40 days to open or reject an account. We need technology to help us fix the manual processes involved in opening accounts. Our goal is to introduce a new automatic on-boarding system that will allow us to make a decision on an individual or joint account much more quickly. Last year, we reduced the manual process to nine days and with this technology we will be able to shorten this period to five days for HNW clients and one day for retail individual clients, whilst being fully compliant with all international AML/KYC standards and regulations.
We have invested between $2-3 million in the system’s development and it will make us very competitive not only in The Bahamas, but also among Swiss banks. Our goal is to launch this technology platform fully this month.
Initially, it will take one-and-a-half to two years to make it robust, but then we should be able to provide this solution to other banks in jurisdictions focused on international clients.
Q: What products and services are proving particularly popular for your clients?
A: Most banks in The Bahamas do not have a trading operation in the country. Subsidiaries of Swiss banks rely on their parent companies, while others use either European or US broker dealers. Given the large number of external asset managers in Switzerland and in The Bahamas, by setting up our own trading operations with lines opened with numerous counterparts in NY and Europe, we will be able to provide execution in both European and US hours, which will provide liquidity not only to our individual clients, but institutional ones as well.
Q: What is your growth strategy?
A: Our first goal is to make PIB’s operations very efficient, as well as improve our client on-boarding process. Our retail private banking platform is another large initiative for the bank, which we expect will represent a large part of our growth for 2019.
Our goal is that private clients and institutions choose PIB as their preferred bank regardless of the jurisdiction. My goal is that a client does not come to us as their preferred bank in The Bahamas, but as their bank of choice globally. I see the bank with a physical presence in the US and Europe, but always as a group of subsidiaries of our Bahamas bank.
Q: In which geographical markets are you seeing the greatest demand? Why?
A: The greatest demand we are seeing is from complicated markets such as Venezuela. The level of due diligence required is extensive but as long as prospects are willing to go through high levels of scrutiny, we will continue to on- board clients from that country. Our natural markets, given our experience, are Mexico, Brazil and Argentina, where we will put tremendous effort on growth.
Investor profiles vary tremendously depending on where they are from in the region. For example, Mexican clients are always interested in emerging market debt, while Brazilian clients are more active in the equity market. Argentine clients in general look for high-grade debt given the historical volatility in their home country.
Q: What recent developments in the region have impacted your business?
A: Political turmoil in Venezuela and Brazil, as well as high volatility in Argentina have made these markets very attractive. Mexico on the other hand is a very competitive market given its proximity and historical connection to the US. However, a deteriorating relationship between the US and Mexico should be a good opportunity to capture assets from my home country.
I think we will see growth in Latin America and Eastern Europe for HNWI private banking; Europe, North America and Asia for retail private banking.