Private bankers run into very public trouble

Matthew Lynn

24 January 2009

Matthew Lynn says banks that prospered by offering exclusive ‘wealth management’ services during the boom years are about to encounter some very angry customers

Of all the phrases in the financial lexicon, ‘private banker’ is one of the most evocative. It summons up images of discreet addresses in the more remote Swiss cantons, of luxuriously furnished townhouses in Mayfair, of chequebooks printed in florid script, of pinstriped executives who never stint on the second bottle of claret. Thriller writers find them as handy a plot device as a fully loaded Beretta. Nothing else manages to wrap up tradition, snobbery and timeless financial solidity quite so completely in one institution.

Until now, that is. Over the next few months, the private banking industry looks set to be rocked by a series of scandals. In this country, Sir Keith Mills, the multi-millionaire founder of the Nectar card business, has just launched a high-profile campaign against what was once the grandest of all Britain’s private banks, Coutts & Co. More high-profile names are likely to join that crusade over the next few weeks.

Meanwhile, the Austrian government has been forced to take control of Vienna’s Bank Medici after it lost a packet on the funds of the disgraced New York financier Bernard Madoff — in which several private Swiss banking houses were also caught up. As David Craig described here last week, even the more reputable hedge funds, towards which the private banking fraternity have directed billions of their clients’ money over the last decade, have been stopping investors taking money out as asset levels collapse. Private bankers are running into some distinctly un-private bother.

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Private 'no-more'.

January 23rd, 2009 9:33am Report this comment

Just as the management of the failed and soon to fail financial institutions either believed or knowingly failed to believe that the 'quants' that were empowered with overseeing the 'risks' of the bank, in actual fact were rote learners and performers. Unskilled in the nuance and ultimately the 'language' of the markets. And so clients that still believe (or hope) that their private banker is awake at their 'post'. Anyone who is willing to stake their net worth upon that supposition is on thin ice. The final expose in this tragedy will be the absolute (not relative), absolute incompetence and conflict of the 'spivs' impersonating money managers and labeling themselves as 'private bankers'. Nothing more than fancy luncheon partners at your expense. They have always known it is a 'numbers game', just ask their task masters for they are compensated accordingly. Not on how your assets (net worth) performs, but how 'net new money' grows. Thats right, you are the love of their life until you are signed up. After that, you now know the rest. At least cab drivers earn a honest quid and are more market savvy.

Grenville

January 24th, 2009 12:45pm Report this comment

What a terrible, low-grade, sneering article. We can all be the best investors in the world with hindsight.

I suggest you do a bit more research: that AIG fund was fine - relatively speaking as any bond fund can be in the midst of the worst financial panic for the last 70 years - and it was ring-fenced from the AIG holding company which was the source of AIG's problems. It was not, however, ring-fenced in terms of brand and name: half its holders (the clients of one firm I believe) saw what was happening to the AIG holding company and panicked, deciding to pull out all at once, and in such illiquid markets almost any fund will fall over in such circumstances.

Unfortunately, if you are running someone else’s money, things do happen that go wrong and it’s the devil of a job spotting them in advance – or else you wouldn’t do it. That is the nature of financial markets and if you can’t see that you shouldn’t be writing such silly sneering hindsight articles.

If it’s so easy, why don’t you become a private banker yourself?

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