If Our Banks Were Structured Like Pictet & Cie, The Banking Crisis Wouldn’t Have Happened
In Switzerland, there is a 207 year old private bank called Pictet & Cie that caters to the the richest of the rich. It has total assets under management of of 373 billion Swiss francs, or just shy of $400 billion in United States terms. Through it, you can hold investment in more than 80 different countries spread out among a network of sub-custodians; a service so well run that is consistently ranks among the top in client satisfaction. The bank has offices in Amsterdam, Barcelona, Basel, Brussels, Dubai, Florence, Frankfurt, Hong Kong, Lausanne, London, Luxembourg, Madrid, Milan, Montreal, Nassau, Osaka, Paris, Rome, Singapore, Taipei, Turin, Tokyo and Zurich.
Pictet & Cie is a private banking giant in Switzerland. The entire firm is owned by eight general partners who have unlimited liability. I think that is a good model that results in better behavior. Banks in the United States could learn something from them.
The entire Pictet & Cie bank is run by eight general partners who have unlimited liability for the losses. If they make a bad bet, and the bank goes down, these partners go down with it. That is the way it has always been, and that is the way it remains.
I think there is a lot of good in that model. Had the investment banks, and even many of the commercial banks, been legally structured in a way where the top management owned the firm, and they had their entire financial net worth on the line, I think much, if not all, of the bad behavior would have been mitigated. It’s one thing to lend someone money for a loan you don’t expect to be repaid and collect a fee on it; quite another if it is your money. Although decent people should treat the two comparably, they don’t. That’s the nature of the human condition so we, as a society, need to structure our institutions to counterbalance the avarice and flaws inherent in the system.
I don’t think it is an accident that Pictet weathered the global economic collapse relatively unscathed (we can’t tell for sure because it is private, though investors fled to them with their money and they didn’t have to undergo the painful asset sales or layoffs other banks did), while its neighbor, UBS, lost more than 50 billion Swiss francs and needed to recapitalize. The bankers at UBS were playing with other people’s money – the stockholders, the investors, and the funds under their control. The bankers at Pictet are acting as good stewards. They have every incentive to do so.
What people want in a financial system is fairness. Had the top management at firms like Lehman Brothers or Wachovia been forced into personal bankruptcy, a lot of the populist anger that boiled up from the lower and middle classes wouldn’t have existed because those responsible would have been served their just desserts. The corporation, while necessary, is not always superior from a public policy standpoint to the general partnership, or even a limited partnership with a general partner managing the day-to-day affairs.
Update: Several years ago, I placed this post, along with thousands of others, in the private archives. The site had grown beyond the family and friends for whom it was originally intended into a thriving, niche community of like-minded people who were interested in a wide range of topics, including investing and mental models. I decided, after multiple requests, to release selected posts from those private archives if they had some sort of educational, academic, and/or entertainment value. On 05/24/2019, I released this post from the private archives. This special project, which you can follow from this page, has been interesting as I revisited my thought processes about a specific company or industry, sometimes decades later. In this case, reading about my thoughts on system-wide incentives and how they can be influenced by both asset and liability exposure.
Incredible changes have happened in the long years since this post was originally published. My husband, Aaron, and I relocated to Newport Beach, California in order to have children through gestational surrogacy. Within a window of a couple of years around that relocation, we also sold our operating businesses and launched a fiduciary global asset management firm called Kennon-Green & Co.®, through which we manage money for other wealthy individuals and families. Nothing in this post was intended to be, nor should be construed as, investment advice or a recommendation. This should be evident considering that we made the decision to establish our own wealth management company – stated candidly, we thought we could do it better given our experience and value investing philosophy. We worked hard for our money, are fiercely protective of it, and quite frankly, we both hope and intend to build an institution through which our own children and grandchildren protect, preserve, and grow their capital.
Reader Comments (4)
Comments are presented chronologically, with replies indented beneath the comments to which they respond.
Gilvus
October 30, 2012
You didn't list a U.S. city up there, so for a moment I wondered if they somehow failed to tap the U.S. market. Turns out, they have an entire division devoted to U.S. nationals and taxpayers :-p
Jack
January 16, 2013
Update
--- Jan.16th 2013.
Pictet
& Cie Bank ---- List of Crimes.
1996 -----
F.S.A--- Breach in London.
2003 ----- F.S.A.
-- States rogues operating in Pictet's London office. Ivan Pictet
states
that documents were forgeries but were later proved to be genuine in
the
British Courts. He had documents destroyrd in their london office --
hoping
to hide the crimes.
2007
.- - - The Securities and Ecxhange Surveillance issued a
recommendation
that
the Prime Minister and The Commissioner of the FSA to take
disciplinary action against Pictet Asset Management – Japan Ltd.
2008
.-- Dec. - Pictet Bank state - " We have never chosen
any funds linked to Madoff.
2011 - - - Madoff
Trustees sue Pictet & Cie. Bank for $156 Million.
2011- - - Pictet &
Cie Bank abetted a Bribery Scheme - Oil company sues Pictet for
$350Million
2012 - - - April
– Geneva Bank Pictet used in Offshore Tax Scheme. ( USA.)
2012 - - - July.
-- De – Spiegel. -- states – Pictet Bank uses a letterbox
company in
Panama
and a tax loophole involving investments in London to gain
German
millionaires as clients.
2012
- - - August ---- German Opposition Leader accuses Swiss Banks of
"organised crime."
Update .
Jan14th.2013..
The following sent
to - - - - 312- - Lords - - - - - - House of Lords. ( Inc. Lord
Myners.)
The following sent
to - - - - 649 - - M.P.'s - - - - - House of Commons.
SWISS BANK PARTNERS IN
CRIMES.
Pictet
& Cie Bank.
Ivan
Pictet.
Charles
Pictet.
Nicolas
Pictet.
Jacques
de Saussure.
Jean
– Francois Demole.
Renaud
de Planta.
Philippe
Bertherat..
Pictet
& Cie.-
claim they are the “Rolls Royce”of Swiss banks.
Swiss
Banks or more correctly Swizz banks.
Swizz.
---- “ a great
disappointment.” or a “ fraud.”
Fraud.
---“ an
intentional deception or dishonesty.”— “a crime.”
Crime.
---“ an act
committed or omitted in violation of a law.”
Serious
Crimes .
Conspiring
to pervert the Course of Justice.
Perverting
the Course of Justice.
Contempt
of Court.
Pictet
& Cie Bank –Partners –(1996—2012)---guilty.
Peters
&Peters – Partners.— (1999---2012)--- guilty.
The
bank and it’s officials/lawyers deliberately withheld crucial
documents requested under a High Court order. The bank and it’s
officials/lawyers deliberately withheld evidence from the Police, and
one of it’s account managers Susan
Broadhead gave a false witness
statement to the Police.
Another one of it’s
managers Nicholas Campiche
( Now Head of Pictet – Alternative Investments.) concocted a letter
pretending to be a client and closed his account. The senior partner
(Ivan Pictet.) sought
to have numerous documents destroyed,along with those copies held in
their London office’s of Pictet
Asset Management. Initially
stating that they were forgeries then their lawyers Peters
& Peters – Monty Raphael –and
the barrister Charles Flint.Q.C.
later had to admit in Court that
the documents were genuine.
British
Parliament. Hansard .29th
March 2007.
Barry Sheerman
.M.P.—quote.
---------“
Constituents of mine have lost
£2 million through fraud. The fraudster used Pictet & Cie - - a
French Bank - - and Pictet Asset Management to back the fraud being
perpetrated.””
(1) It is a criminal
offence for a bank to knowingly act for an undischarged criminal
bankrupt in so far as it seeks to assist that criminal bankrupt in
the fraudulent movement of monies. ( Money Laundering.)
(2) It is a criminal
offence for a bank to lie to the police and the bankrupts trustee in
bankruptcy in so far as any knowledge of, or dealings with the bank
was refuted .
(3) A bank can be guilty
of Contempt of Court if it fails to comply fully with the Courts
order for discovery .
(4) The banks
contempt is further compounded if it fails to address its error after
it is specifically drawn to the to its solicitors attention. ( Monty
Raphael).
(5) It is a criminal
offence under the Financial Services Act to seek to destroy evidence
that might be relevant to an investigation .
(6) It is a criminal
offence not to relinquish control of funds to the Trustee immediately
the fact of the bankruptcy is drawn to the banks attention.
(7) It is a criminal
offence to lie or otherwise obfuscate the lawful and proper enquiries
of the F.S.A.
In the F.S.A.
cover up , they concluded that there had been “ Rogue”
elements in Pictet & Cie’s , London operations . They had been
moved from their London Office so who was there left to prosecute. “
Unbelievable.”
***
We thank --David
Cameron. M.P. ( Canary Wharf Speech.)
PRIME MINISTER.
(1) Bankers who
behave irresponsibly should face professional
consequences.
(2) If anyone is found to
have behaved criminally they must be prosecuted.
(3) The
F.S.A and the Serious
Fraud Office should be following
up every lead,
investigating every
suspect transaction .
(4) We need to make it
100% clear –those who break the law should face
prosecution.
(5) That we make sure we
root out any wrongdoing that may have happened, whoever
is involved,
however high or well connected they may be.
Ivan
Pictet.
Managing partner in
Pictet & Cie Bank . --- retiring -?. 2010.
President of the
Geneva Financial Centre. ---stepping down -2010. ?
World Bank.committee
member.---- ?
United Nations.
Investment Committee member,
Vice President – Global
Humanitarian Forum. --- redundant.2010.?
Member of the Henokiens.
Blackstone Group ---
Board Member.
Past- President –
Geneva Private Bankers association.
Past –President –
Geneva Chamber of Commerce and Industry.
Monty
Raphael.
( Peters & Peters.)
Quote.”
---- Doyen of U.K. Fraud lawyers.
Head of Fraud and
Regulatory Dept. ---- stepping down, --2009.?
Director of the Fraud
Advisory panel.
Member of the Law Society
of England & Wales.
International Bar
Association Member.
Written
Parliamentary Questions received by the table office ..
(1) To ask the
secretary of state what steps he is taking to ensure that Swiss Banks
such as Pictet & Cie do not evade criminal prosecution under EU
law even when the illegal act is committed by a London based
subsidiary.
(2)To ask the
secretary of state what steps he is taking to protect the rights of
UK citizens who seek redress following criminal activities by Swiss
banks with subsidiary offices located in London.
Quote.
( America’s Top Lawyer .)
You can be
the richest man in the world with the best lawyers that money can buy
but you cannot win against a man who has got nothing left to lose and
is telling the truth.
Truth Hurts.
Ivan
Pictet. Announces stepping down from Pictet & Cie. 5th
Feb 2010.
Stepping Down—President of Geneva Financial centre.—2010.
Monty Raphael.
Steps down as head . May. 2009.
*** We
note that there has been a sharp increase in Peters & Peters
partners leaving to go to other practices. Moving does not alleviate
them of any responsibility from any illegalities that may have
occurred at Peters & Peters during their partnership tenure. From
1999 onwards.
***
Were currently waiting to see if the Police and other Law
Enforcement Bodies attempt to cover this case
up like their F.S.A.
counterparts. If
they do –“ then watch this space.”
We were informed
that due to pressure from our M.P. that the Ministry of Justice have
asked Lord Myners to investigate our claims that the F.S.A. covered
up the illegal activities of Pictet Asset Management. London.
It has been noted
that the book launch for PICTET was held at Lord Myners Belgravia
home.We might as well have asked Ivan Pictet to investigate our
complaint.-or someone from FRIENDS RE-UNITED.
Lady Myners on Prix
PICTET advisory board.
The consensus of
opinion is the Pictet & Cie should be prosecuted , and that their
U.K. banking licence should be taken away.
Their Solicitors at
Peters & Peters .London “ struck off and prosecuted..”
*** Started
campaign --- June 6th.2008.
4 years ---- approx
6 .5 million e-mails - - - but still no writs, injunctions or threats
of litigation - - - WHY - - - because it is all true.
*** . The bigger
they are --- the harder they fall.!!!
In
America ---- they would have all been in prison for the last seven
years.
Full
Story.
" Google "
.
Insert-- ( Charles
Pictet. Banker.
Insert-- ( Ivan
Pictet.Banker.
Insert-- ( Jacques
de Saussure.Banker.
Insert-- ( Nicolas
Pictet. Banker.
Insert-- (
Jean-Francois Demole.Banker.
Insert-- ( Renaud
de Planta. Banker.
Insert –(Philippe
Bertherat. Banker.
Joshua C Michnowski
November 17, 2014
You made a fundamental mistake.... Wealth managers are not the same as full service investment banks with private wealth arms. Different businees, different reward, different risk.
Joshua Kennon
November 17, 2014
Replying to Joshua C Michnowski
Respectfully, no. The mistake being committed is your assumption that I think the particular lines of business are relevant to the question of the legal structure that would result in the highest curtailing of system-wide risk based upon the the combination of both explicit and implicit shifts in managerial opportunity cost, which caused you to then assume that by mentioning wealth managers, investment banks, and commercial banks in the same passage, I believed them to be analogous. I don't, therefore the distinction is meaningless.
To make the point more directly: Looking solely at investment banks, history has demonstrated that, when run conservatively and structured such that the partners have significantly more legal and financial exposure to the downside of misplaced bets, these firms operate with greater safety and prudence.
For example, had UBS been a partnership, the very investment bank operations that caused the losses likely never would have been permitted on the balance sheet because the partners would have had to think about what was the most profitable long-term, not what would generate the greatest reported earnings, and bonuses, in a given year. Had Lehman Brothers been a partnership, it is unlikely the partners would have allowed it to rest upon a foundation of fickle short-term funding sources for its working capital needs because it would have kept them up at night. This is basic managerial theory and behavioral economics: Agency costs are real.
To say the risks these two institutions faced were somehow endemic to the investment banking industry itself, or make it necessarily more risky than wealth management, or even traditional commercial banking, is both nonsense and historically inaccurate. They were responses to incentives; incentives that the old guard, who had survived both the 1929-1933 and 1973-1974 periods warned would happen when the Glass-Steagal act was repealed and, again, when Goldman Sachs led the charge for Wall Street's houses to convert from partnership to corporations.