Carlo Thill, CEO of BGL BNP Paribas retires after 40 years in banking
(Photo: Jan Hanrion)
Carlo Thill, CEO of BGL BNP Paribas Luxembourg, will retire at the end of June 2018. In an interview with Delano, he takes us on a brief tour of 40 years in banking.
Throughout his 4o-year banking career in Luxembourg, Carlo Thill has seen his sector, and country, undergo massive changes: from iron and steel, to the euro bonds market and the rise of the banking industry to the introduction of the Ucits legislation that would transform the economic landscape of the grand duchy. He has witnessed the worst global financial crisis since World War I and has been a key figure in navigating Luxembourg through its aftermath.
The CEO of BGL BNP Paribas has spent the entirety of his working life in assorted roles for BGL in its various forms, and at the end of June he will hand the reigns over to Geoffroy Bazin, as previously reported on Delano. Soon he'll take off for pastures new or, as he more precisely put it, “...reading, sport and grandchildren."
1970s & 1980s
“When I first started in banking in the 70s the industry was very different from today. The euro bond market was a major activity. Bonds were issued by Luxembourg banks on behalf of large corporates and listed on the Luxembourg stock exchange. In fact, there are many bonds today that are still listed on the Luxembourg stock exchange although the activity of bond issues has since declined in Luxembourg.”
As the 80s progressed, so came Ucits and wealth management to Luxembourg and the good times started as the financial sector began to develop what would become Europe’s leading (private) banking and funds centre. And thus, the 90s progressed.
1990 to 2000s
The 2000s saw the beginning of a seemingly unending string of events that were to change the face of banking.
The automatic exchange of information was introduced to the EU in 2005 via the Savings Tax Directive, the aim of which was to ensure that interest on savings income held in a member state and paid to residents of another member state is subject to the correct taxation in the country of residence. At the beginning Luxembourg did not participate in the automatic exchange of information, opting instead for the application of a 15 percent withholding tax.
However, since January 2015, the grand duchy has applied the automatic exchange of information on tax payments, strictly limited to an exchange between competent tax authorities on investment income and upholding professional secrecy.
“Luxembourg banks had to see the big picture,” said Thill, “and following the financial crisis, the picture changed completely. The world had changed, and we had to accept it.”
The global financial crisis
Then came the global financial crisis of 2007-2008. Briefly, this crisis is considered by many economists to be the worst since the Great Depression of the 1930s. It began in 2007 with the US subprime mortgage crisis and progressed to a full-blown international banking crisis with the collapse of Lehman Brothers in September 2008. Blamed on excessive risk-taking, it resulted in massive bail-outs of banks in order to protect nothing less than the world financial system. Despite this, the financial crisis of 2008 triggered a global economic downturn and the European debt crisis.
The result of this was a raft of reforms and new regulations for the financial sector and banks in particular (which is still ongoing). “As from 2010 Luxembourg banks had to change their business models, and this was a huge challenge. What was acceptable before was no longer okay.”
“Safeguards needed to be put in place. It was not acceptable that taxpayers had to pay for the mistakes of banks. Increasing our capital base, for example, was difficult but necessary and explains why today banks have a tough time producing the return on equity that investors want.”
According to Thill, meeting solvency ratios has also been a challenge that requires even more reserves in order to absorb shock. “Banks now need to have provisions on their balance sheets to avoid what we saw during the crisis, namely runs on banks. They are required to pay into a specific fund for this--the Single Resolution Fund.”
The Single Resolution Fund is made up of contributions from credit institutions and certain investment firms in the 19 participating member states within the banking union. It ensures that the financial industry provides for its own stability.
“It protects tax payers by intervening in the case of a major financial crisis and avoids governments having to take massive stakes in banks to uphold the financial system,” Thill explained.
“We now have a European supervisor in the European Central Bank, whereas before we only had local regulators and local rules,” he continued. “We have European regulation, such as those mentioned before on capital reserves, liquidity ratios and solvency ratios, however, national authorities tend to favour ringfencing their domestic markets.”
“A truly European view is needed,” Thill insisted. “Ratios should be managed at a European level and not country by country. This is very important for international groups.”
The banking sector is continuing to evolve due to regulation with Mifid II, GDPR and PSD2 looming, but for Thill the biggest single fact that has irrevocably changed banking happened much further back, before there was talk of crises and savings’ directives.
“The introduction of the PC was a major revolution as the balance of power shifted from back office (financial) people to commercial people. And now with digitalisation, we see power shifting from the front office to the consumer.”
In closing, Thill said that he is very much looking forward to his retirement (especially time with his grandchildren), but also noted that he has thoroughly enjoyed his 40-year career. To his successor Geoffroy Bazin, he sends his best wishes with a gentle reminder that “we are not just here for shareholders. Take care of employees and keep giving back to the local community."