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Pictet Lures Competitors’ Clients in Swiss Bank Turmoil

Pictet & Cie. Group SCA, Switzerland’s biggest closely held bank, increased assets under management six percent in the first half, as narrowing margins and a U.S. tax program led some competitors to sell or downsize.

Managed assets grew to 319 billion Swiss francs ($348 billion) from 301 billion francs, Pictet said in its first publicly announced earnings statement since its establishment in 1805. Total client assets, including those held in custody, amounted to 404 billion francs, it said today.

“Every day we acquire clients coming from banks that are in difficulty, or being reorganized, restructured, sold or merged,” Senior Partner Jacques de Saussure, 62, said in an interview at the bank’s Geneva headquarters yesterday. “This is the main source of new business.”

Swiss private banks are preparing for an increase in acquisitions after declining profitability and provisions for a U.S. Justice Department probe into tax evasion hurt earnings. That prompted 34 of 94 banks surveyed by KPMG to report a loss for last year, the accounting and advisory firm said on Aug. 20. While Switzerland remains the world’s largest hub for offshore banking, with $2.3 trillion of cross-border assets in 2013, the number of Swiss private banks fell to 139 at the end of 2013 from 182 in 2005.

Pictet didn’t report a figure for net new client money, which measures inflows versus outflows of customer assets. De Saussure declined to provide details.

No Provisions

The company said first-half profit was 203 million francs. It didn’t provide year-earlier figures. More than 80 percent of operating income of 975 million francs came from fees and commissions.

Pictet is one of a dozen Swiss banks under investigation for allegedly helping Americans avoid taxes, while another 100 banks in Switzerland entered a voluntary tax disclosure program at the end of last year.

“There’s nothing really significant to report because there have been no discussions” with the Justice Department, de Saussure said. The bank didn’t have sufficient information on the potential costs to make a provision related to the probe in the first half, he said.

While de Saussure joined other Swiss bank chief executive officers such as Julius Baer Group Ltd. (BAER)’s Boris Collardi and EFG International AG’s John Williamson in predicting more consolidation in the Swiss private banking industry, the Pictet partner said he won’t stray from the company’s policy to grow organically rather than by purchasing companies.

“In the current environment very few people want to buy legal entities because of legacy issues you may not know about,” he said.

Louis XIV

De Saussure, who lives in the former residence of an early 18th century ancestor who acted as a banker to Louis XIV of France, joined Pictet in 1980 and leads eight managing partners at the firm, including Nicolas Pictet and Marc Pictet. The bank revealed in the report that 49 owners, including partners, hold equity stakes.

First-half profit bolstered the bank’s equity to 2.2 billion francs -- the net accounting value of the firm.

De Saussure said he is seeking to grow by hiring teams of staff including bankers looking to move to a more “stable” company. The bank’s capital exceeds regulators’ requirements and will “at some stage” be reduced, he said.

Return-on-equity, a measure of profitability, was almost 18 percent, according to the statement. That exceeded a Swiss industry average of 3.3 percent calculated for 2013 by KPMG.

Partnership Structures

Under pressure from regulators overseas, Pictet and two other Geneva-based private banks dropped their centuries-old partnership structures in January. New corporate partnership arrangements came with the requirement to report earnings publicly. Cie. Lombard, Odier SCA is due to publish its first financial statement in two days time. Mirabaud SCA also changed its structure.

Pictet, which traditionally targeted the wealth of affluent individuals and families to become Geneva’s biggest private bank, said total client assets at the end of June were split almost equally among three business lines spanning private wealth management, institutional asset management and asset manager services.

Pictet’s gross margin, or revenue divided by client assets, was about 50 basis points, Chief Financial Officer Daniel Wanner, 58, said at the interview with de Saussure. A basis point is one hundredth of a percentage point. Pictet reported a cost-to-income ratio of 75 percent.

Pictet will provide more details of its finances, including net new client money, in its full-year earnings statement, Wanner said.

To contact the reporter on this story: Giles Broom in Geneva at gbroom@bloomberg.net

To contact the editors responsible for this story: Mark Bentley at mbentley3@bloomberg.net Steve Bailey

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