By rights, Basel-based Baumann shouldn’t exist: a minuscule, highly profitable Swiss private bank run by a triumvirate of partners. How?
With just 60 staff, no foreign branches, and assets far less than the 10 billion Swiss francs seen as critical mass for private banks in Switzerland to survive, Baumann & Cie should be dead already.
Instead, the partner-run private bank earned 13.3 million Swiss francs last year on an undisclosed sum of assets.
The profit is down 15 percent on the year, but nevertheless remarkable for a private bank of Baumann’s size: the bank says only that subsidiary Trafina, another private bank, holds 1 billion Swiss francs in assets, and that the overall total is «slightly more than that».
How is it making money?
Eschews Foreign Branches
The bank makes the bulk of its profits outside of wealth management, as an investor in real estate, biotech and a fund unit. Baumann doesn’t report exact numbers – nor is it by law required to – but the diversification has clearly cushioned blows to the private banking industry – countless probes into undeclared offshore accounts, rising regulatory requirements, and ultimately the end of banking secrecy.
Baumann is unconventional in other ways: it has just three offices, in Zurich, hometown Basel, and Olten, a sleepy mid-sized town half-way between the two. It eschews the pricey foreign outposts in Asia or the Middle East that competitors have poured millions into building up.
The bank is run by a dying breed: its three partners have pledged their personal assets with unlimited liability, meaning they could be wiped out in case major losses hit the bank. It has lost clients in the last five years, as German clients have cleared out as well as American ones. Baumann paid $7.7 million two years ago to settle a U.S. justice probe over wealthy American clients and offshore accounts.
Rowdy, Unceremonious
The three, Matthias Preiswerk, Daniel Rueedi, and Rolf Buehler, are as close as Swiss private bankers will get to being rowdy and unceremonious. They have openly challenged Finma – a rarity in the post-crisis era of regulatory assertiveness – over what they see as too onerous of technocratic regulation.
They have also successfully fought to roll back an arcane Swiss law dictating that private banks must be linked to the family whose name it bears: a Lombard and an Odier family member must be operationally active at Lombard Odier, a descendent of the Pictet family must fulfill a role at the namesake bank.
Since partner Urs Baumann’s retirement last year, no founding family descendants are partners at Baumann & Cie, which would have forced a change of bank name in the past. Thanks to a three-and-a-half year legislative battle in Bern to reverse the law, the bank can maintain the Baumann name.
Lower Profitability
Baumann’s partnership structure is one that scores of banks including Pictet, Lombard Odier and Mirabaud have abandoned in recent years in favor of incorporating – in part, over fear of major fines and penalties from years of taking undeclared tax money. Baumann said it is sticking to the structure, mainly because it is a very good sell to clients.
«Clients appreciate that they know the people managing the bank, and driving it forward, and that we’re not a guild of executives working with someone else’s money,» said Preiswerk (pictured below far-right, with now-retired partner Urs Baumann at far left, along with Buehler and Rueedi).
It suffers a double tax hit on some income: dividends from its stake holdings as well as when those payouts translate into profits, but calls this a «digestible» disadvantage.
At roughly 70 basis points, Baumann’s gross margin – a measure of private-banking profitability of clients’ assets – is far lower than larger competitors. Preiswerk and the partners say hiking the measure is an illusion, and the bank will look to slim its organization to bolster profitability instead.
«It’s questions like ‚do we really need a bank license? Is that efficient?‘ Those are the sort of things we are looking at,» Preiswerk said.
