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Wealth Manager: SGPB Hambros' CEO on why the UK is a challenge

Wealth Manager: SGPB Hambros' CEO on why the UK is a challenge

Eric Barnett cuts an unusual figure in the Société Générale’s private banking offices in London, not because he seems to lack the bilingual fluidity of his colleagues, but because he is a true Londoner – from Kew Gardens, Richmond – and has been at the same firm for more than 27 years.

For the young man who landed in banking more by default rather than by design, becoming chief executive of Société Générale Private Banking Hambros (SGPB Hambros) during the month that saw the Bank of England bail out Northern Rock signalled the start of a new era.

‘My time as CEO has been entirely one of crisis and without wanting to tempt fate, I am practically the only bank CEO left from that period,’ he jokes.

After spending a couple of unsuccessful weeks studying English at university, Barnett switched instead to economics. When he graduated in 1983, he landed a job in NatWest’s international division.

‘It was a time when unemployment was higher than it is today and jobs were going out in the banking sector,’ he says.

Three years later, he joined his former NatWest boss, who had left for Hambros. He recalls: ‘It was a prestigious place to land in those days, as it was the largest investment bank in the City in the 1960s.’

Within Hambros, Barnett ran structured products, debt recovery and corporate teams until the mid-1990s when he moved out of the commercial bank into private banking.

‘Those banks used to have an entrepreneurial side,’ he remembered. ‘Hambros’ chairman used to say merchant banks were like parasites: they would land on a particular vein, suck it dry and move to the next one. It was not really strategic then, more opportunistic. Hambros did it all, from estate planning to life insurance.’

After spells in London running the leveraged debt team, where ‘you knew a lot about very little’, Barnett moved to Guernsey. There, he learned the ropes of the ‘full-service’ bank running.

‘It was excellent fun and a very good way to get an oversight of how to run a bank. From a career point of view, and wanting to get into private banking, it was an excellent grounding for me,’ he explains.

 

He was safely tucked out of the way in the Channel Islands when Société Générale bought Hambros in 1998. All non-private banking units were transferred into Société Générale’s investment bank.

‘The old Hambros undervalued [the private banking business] and didn’t realise the jewel it had because it was in the heart of its investment bank. It was a clever move from Société Générale because it’s quite difficult for a pure European bank to achieve success in the UK without some sort of local branding.’

Having only created a private banking collective division in 1996, Société Générale was a supportive shareholder, and within five years, Hambros’ little team grew from five to 85 bankers.

‘Private banking became a very sweet spot for banks, and although Société Générale had high net worth clients in some businesses, it only formed the private banking division as a collective division in 1996,’ he says.

‘Yet that sector is a good business for banks: it provides annuity income, liquidity, and doesn’t use very much capital.’

Barnett spent seven years in London before becoming chief executive in 2007.

Today, the private bank delivers a range of offerings, from cheque books or credit cards ‘with all the bells, whistles and airport lounges’ to financial planning, lending, trust and asset management services alongside advisory, discretionary and execution-only services.

‘We are not a one-trick pony. This also means we have a number of cylinders on which to fire if the markets go down.’

People like a ‘one-stop shop idea’, Barnett says, and with at least 50% of its UK business done with UK-national clients, he explains there was always a need for financial planning.

‘It’s different on an international level, because global clients want multi-jurisdiction planning, which is more likely to involve trust work, and different tax regimes.’

While the UK domestic market is core to SGPB Hambros’ strategy, Barnett acknowledges the market is not ‘something European banks in London go for’.

A fervent defender of the idea that London is the greatest financial centre in the world, he adds: ‘London is our other key advantage because of its international financial centre status. We can piggyback on our heritage of Hambros for our domestic business, and our position in London as the crossroads of international flows of the world.’

 

While the UK business is seen as steady and stable, the chief executive explains that the bank is also strong in Russia.

‘There, our mother company is the largest foreign retail bank. There are many Russians living and investing in London. Basically, our business in London helps Société Générale leverage their strategy globally.’

Barnett adds the advantage comes from close relationships, with Russians also keen on nipping across the Channel.

‘South of France is a sort of Moscow-by-Sea,’ he laughs. ‘We have a natural appeal.’

While there are challenges in compliance, and ‘know your client’ due diligence, Barnett adds asset growth opportunities are still found in Russia, because wealth is still continuously being created.

To grow that business, he hints at expanding the team over the coming years.

Back in the UK, Barnett explains growth is more difficult to be found.

‘Today, for a business like ours to grow, we have to tap into someone’s market share as money doesn’t grow any more.’

As far as clients are concerned, he explains, post-crisis, emphasis switched towards capital preservation as opposed to looking for growth opportunities. Their attitude towards banks has changed, because pre-Lehman Brothers, a big bank automatically meant a safe bank, he says.

‘The ratchet is tightened and will stay tightened,’ Barnett says, adding his bank had come out of the banking crisis relatively unscathed.

He acknowledges: ‘It feels like Hambros has kept its reputation over the years, partly because of the size we are at, we don’t attract the mud some other banks have had thrown at them. And to a certain degree, it has been enhanced by the crisis rather than diminished.’

The bank, which manages €84.5 billion (£72.52 billion) in assets [as of June 2013], has been attracting clients from bigger banks and there has been plenty of opportunities to take pot-shots at the competition.

‘Since 2008, we have seen some stabilisation, which many say is caused by living on a debt-fuelled boom, but for the first time since 2008 I have the feeling we might be having a more normalised business environment where we can plan for a certain, reasonable level of growth,’ he says.

 

Often pessimistic, Barnett believes the debate is not just about how much the economy can grow ‘although 2% would be good’, but being able to assume a crisis emanating from the eurozone will not take place.

‘It’s a prophetic thing to say,’ he adds. ‘This would be good, because it would mean businesses will be able to focus a little more on investment, not just on survival.’

Looking back, Barnett says the crisis period has been a very interesting time to manage a bank, because all of the changing expectations were hugely challenging.

‘I guess one day I’ll sit in my chair and look back and say it’s rewarding,’ he laughs, adding he is quite positive about the future.

He hopes to organically double the assets managed in five years.

On a more strategic level, Barnett says the biggest challenge facing the sector is that private banks have been quite slow to embrace the digital age compared with retail banks.

He says clients didn’t always embrace the internet [but] firms’ investment in technology will change that model significantly. ‘Those who will lose are those who won’t invest enough,’ he adds.

SGPB Hambros has embarked on a multi-million pound five-year IT plan for an overall front and back-office revamp, including core business systems, online and risk control tools.

He explains: ‘A big majority of our clients are direct [through referrals, existing clients, and the internet], but our relationship with the client is now slightly removed when we deal with intermediaries offering them a platform.’

Barnett is not ruling out acquiring smaller businesses in the bank’s core businesses.

 ‘There are various different models in the wealth market, so you have to be careful not to be buying just the client book,’ he says.

‘We’re talking about a heavy investment on the front-office side [the IT plan], but if the opportunity to acquire comes along, why not? There are opportunities for us now that our foot is not off the pedal. It won’t take too much time from here to grow.’

More generally, Barnett believes that market consolidation will continue, with deals in the £2 billion area – mostly the takeover of businesses that had critical mass pre-crisis and are now slightly sub-scaled.

 

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