“Being a private banker is a profession that requires certain knowledge in terms of services, care, investment products and reporting,” Bernard Lhoest, a former banking leader at the consultancy EY who recently retired, said during an interview at Delano’s office on 28 July 2023. He thought that clients do not get the same services, competencies and experience in French or Belgian banks.
Client prospecting: L’union fait la force
Yet private bankers could not simply wait for the phone to ring anymore. They had to travel abroad and get their hands dirty to prospect clients, explained Lhoest. “The competition is fierce to attract the Italian or Spanish wealthy individuals as they are also teased by the Swiss or the UK banks, among others […] and it is more difficult to convince them than the Belgian dentist.”
Some Luxembourg banks such as Banque de Luxembourg, Lombard Odier and Indosuez have set up branches in other European countries where clients are living to enhance their business relationships, Fabio Mandorino, senior advisor at the Luxembourg Bankers’ Association (ABBL), said in an interview in Kirchberg on 9 August, a comment echoed by Lhoest. It is also true with Chinese banks, which established their European headquarters in Luxembourg with branches in Frankfurt, Amsterdam and Milan, to name a few cities.
The ABBL, the Association of the Luxembourg Fund Industry (Alfi) and Luxembourg for Finance (LFF) understood from 2013 that their role had to expand to support local players abroad in the prospection of private clients, noted Lhoest. These initiatives were further propped up by the Luxembourg House for Financial Technology (Lhoft).
Brexit: a welcome boost for the financial sector
In terms of exogeneous events, Lhoest thinks that Brexit contributed to the success of alternative investment funds (AIFs) in Luxembourg. “Before Brexit, a large number of American participants in private investments such as KKR, Carlyle, Blackstone used to be in London.”
Mandorino noted that Brexit broadened the geographical spectrum of the financial institutions in Luxembourg with the arrival of two Brazilian banks (ITAU bank and Bradesco) and CIBC from Canada to maintain access to the single market in corporate banking.
Besides, Mandorino noted the arrival of American banks such Citibank, JP Morgan and Goldman Sachs and the Swiss banks that started or boosted their private banking activities using Luxembourg as an EU hub. He also observed that their advent somehow slowed the decline in the number of private banks.
We are not in banking secrecy territories but on fiscal incentives to attract companies.
Mandorino thinks these banks came to Luxembourg given the stability of the country, but also because of the existence of one of the highest number of double tax treaties in the world.
Improving the financial reputation of Luxembourg
“Any article written by a French or German newspaper still considers Luxembourg as a fiscal paradise,” sighed Lhoest. In addition to its historical private banking reputation, “Europeans noticed that Luxembourg attracted large corporations upon the promise of not paying taxes.”
This is also about to change thanks to the current discussion at the OECD level for a minimum tax rate of 15% on corporations. “We are not in banking secrecy territories but on fiscal incentives to attract companies,” stated Lhoest. A situation that does not help the perception.
Yet, Camille Seillès, secretary general at the Luxembourg Bankers’ Association, believes that that the end of banking secrecy for non-residents has had a positive impact on Luxembourg’s position as a global financial centre on the back of better perception toward the country as an actor playing by the rules.
Seillès also observed that the Financial Action Task Force, the global money laundering and terrorist financing watchdog, has recently recognised the effort of Luxembourg when addressing the risk posed in terms of anti-money laundering.