Giorgio Pradelli has worked in the banking sector for 30 years. After starting out at Deutsche Bank, where he spent 12 years, he joined EFG Group in 2003 and has been CEO since 2018.
Mr Pradelli, what are EFG's business areas?
Giorgio Pradelli: We are active in private banking and asset management as well as investment fund services, in conjunction with our private banking business. We have a total of CHF 144bn in assets under management. Half of our clients are UHNWIs--people with financial assets of more than $100m--who entrust us with an average of $30m, 37% are HNWIs and 13% are wealthy individuals. We offer them a range of investment services--including direct access to the trading room--as well as estate planning solutions and, for UHNWIs, sophisticated credit solutions.
How is your bank doing?
Even though 2022 was again a difficult year where it was not easy to predict what would happen with inflation at a 40-year high, high market volatility and a war in Europe, our bank is doing well. We had set ourselves a target for the period 2019-2022, before the covid crisis occurred, of between 4% and 6% net growth in our assets under management. We are on track. This year, growth will be lower. At the end of September, we were at 2%. This is mainly because many of our clients have decided to limit their leverage by closing their Lombard loans [a Lombard loan is a loan granted against the pledge of liquid assets such as shares, bonds or investment funds, up to a certain percentage of their value].
As announced in October at our Investor Day, we expect to achieve our profitability targets of 85 basis points on revenues, a cost income ratio of 75% and a return on equity (RoTE) of 15%.
Our position is stronger than it was five years ago and we can go into our next strategic cycle, which runs to 2025, in a strong position.
Even more so since the Brexit, Luxembourg is our hub in the European Union.
How does your company differ from your competitors?
We are already a fairly young bank, originally founded by the Latsis family in Switzerland. We really started to grow in the 1990s and we went public in 2005.
Above all, we are an entrepreneurial bank. This is our DNA: the customer is at the centre of our business. Our managers are called ‘Client Relationship Officers’ (CROs). The relationship between the CRO and the client is the bank’s most valuable asset. We want this relationship to be one of trust, a long-term relationship, a relationship of trusted advisor. Even if we develop our own offer, we work in an open architecture and we always try to find the best solution, the one that meets the client’s needs. The CRO is like a conductor who leads all our product specialists. There is this discussion in our industry about whether the relationship with the client should be with the institution or with the manager. For us, CROs are partners, not salespeople. We support them constantly.
With the increasing number of scandals affecting the big Swiss banks, led by Credit Suisse, is the image of the Swiss private banker still attractive to clients and investors?
Yes, Swiss private banking is a brand that sells well around the world. The case you are talking about is not ‘systemic,’ it does not harm the brand or our institution.
How important is Luxembourg to your group and what are your ambitions there?
Even more so since the Brexit, Luxembourg is our hub in the European Union. It is also a central location for private label funds with a unique service offering.
We have been present there since 2006. Five years ago, to gain critical mass, we made two acquisitions: and . Today, we have almost CHF 10bn in assets under management here and employ just under 150 people in our two businesses, Private Banking-Wealth Management and Investment Fund Administration and Custody Services.”
To manage all aspects of a client’s life, both family and business… you need human intelligence.
How are the demographics of high net worth individuals and their expectations changing? And how do you adapt?
In our business model, we are focusing more and more on high-end clients, UHNWI and HNWI. The mass affluent clientele who used to go cross-border is disappearing because of the cost and the development of solutions in their domestic markets.
As for the UHNWI and HNWI clientele, it is changing. A new generation is emerging. A new generation that is more sensitive to digital, ESG, sustainable development and impact investing. We are developing an offer to meet a demand that is driven by this new generation and is unstoppable. Even if some players went a little too fast, a little too far, and now have to backtrack, the trend is there.
You mentioned digital. What about digitalisation for the private banking business and what is your policy in this respect?
For the new generation of high net worth individuals, digitalisation is a sine qua non condition to start a relationship.
Even if we think that the manager will remain at the centre of the relationship with the client, on certain parts of the value chain--equity trading for example--digital can have an added value. But to manage all aspects of a client’s life, both family and business--many entrepreneurs have ‘integrated’ family and business situations--you need human intelligence.
Now the manager needs digital solutions that give him or her the possibility to manage modern complexity. The advantage of digital solutions is that they can centralise and automate many of the back and middle office services, which makes it possible to make economies of scale, while at the same time offering optimum flexibility in customer relations. For a global bank like us--we are present in Hong Kong, Singapore, London, Luxembourg, Monaco, Switzerland, Miami, the Bahamas and the Cayman Islands, while prospecting in 40 countries--this is essential.
Our business is a business based on personal relationships. This is still the case, but digital solutions can help. If they are properly secured.
We believe that private assets will become even more important because they offer the possibility of better smoothing a volatile economic cycle.
In the current environment of inflation, rising interest rates and geopolitical tensions that signal de-globalisation, what is your advice to your clients?
2022 was one of the most difficult years in the markets that I can remember. Even worse than 2009 because at least then the correlation between stocks and bonds was not as close as it is today.
In the current conditions, the main advice we give to our clients is to diversify. After 10 years of purgatory, bonds are once again becoming an attractive equity class. You don’t have to venture into the high-yield segment to get decent returns. As far as the equity markets are concerned, we are not negative at the moment. Many sectors have undergone a major correction, others not yet. Hence the importance of good diversification.
We believe that private assets will become even more important because they offer the possibility of better smoothing a volatile economic cycle. The only condition is to favour quality assets and to avoid excessive leverage now that money has a cost again.
Finally, for clients who look at the market in a more tactical way, we advise structured products, or even derivatives and options directly for ‘high-end’ clients.
How do you see 2023?
2023 will not be a simple year. The post-pandemic adjustment is not over and is complicated by geopolitical tensions. Inflation will remain high and central banks will continue to raise rates to try to control it, but at a slower pace than we saw in 2022. I think the economies are showing resilience and after a couple of quite tricky quarters, things will stabilise.
This interview is from the Paperjam + Delano Finance newsletter, the weekly rendez-vous to follow financial news in Luxembourg.
This article was first published in French on . It was translated for Delano.