The mysterious private banks of Geneva

"We are not private banks; we are private bankers," said Thierry Barbey. He meant that every partner of Lombard, Odier & Cie, himself included, had unlimited personal responsibility.

This is the definition of a private bank. It looks like an anachronism, left over from the days before the limited liability company was invented. It does not fulfil the normal functions of a bank; it does not lend, except now and again to a client with a short-term liquidity problem. Its business is portfolio management. Outsiders believe that a private bank's income cannot be more than 1% of the portfolios it handles.

In a dozen years the number of Swiss private banks has shrunk from 49 to 23. In Zürich Bank Julius Bär has become a limited company. In Geneva Ferrier, Lullin & Cie has been swallowed up by the Swiss Banking Corporation.

Worse, the spectacular bankruptcy of Leclerc & Cie in May 1977 resulted in the arrest of Robert Leclerc, who is still awaiting trial. Overshadowed at the time by the Chiasso scandal, the Leclerc débacle continues to send ripples through Geneva, spiritual home of the private bank. Only two banks in Geneva, besides a small one in Yverdon, are still run entirely by the families which founded them.

Yet there are signs of continuing and even increasing vitality. Tardy Baezner & Cie recently ceased to be a limited company, in order to resume the status of private bank. Private bankers insist that they give a service which, besides being more personal, pays the customer better than that of the big banks. They tell of clients who came to them in despair, after losing 90% of their capital through a big bank's clumsy portfolio management.

There are some who argue that the very fact of their unlimited responsibility makes them more alert to market movements. Jacques de Chollet, of Chollet Roguin & Cie, Lausanne, when asked by Euromoney whether he had given the right advice, exclaimed: "Obviously, or I wouldn't be here. I'd be begging my bread in the streets."

And a tribute to the quality of the private banks comes from Mellon Bank NA, Pittsburgh, which has set up a company in the Bahamas, in partnership with Pictet & Cie, to manage the funds of institutional investors. Why Pictet? Barker French, vice-president of Mellon, said simply: "They're the best."

Lombard, Odier & Cie is also known to have taken on a new lease of life as manager of great institutional funds. Its senior partner, Thierry Barbey, insisted that the 22 surviving private banks were not less important in the Swiss banking system than the 49 banks had been.

Six of the private banks in Geneva form a bond-issuing syndicate, which is invited to prticipate in every new Swiss franc issue. If, as Barbey surmised, China were to issue a bond, Geneva might well be the ideal place to do it.

Euromoney sent Nicholas Faith and Alison Macleod to Geneva. Some of the bankers they met had never before talked to any journalist. But (once assured that they would not be asked about their clients) they talked freely. Only one banker in Geneva, and one in Neuchatel, refused absolutely to say anything. What emerged was their stubborn faith, not only in their way of banking, but in their way of life.

The boy at the exclusive school was playing alone. None of the other boys would speak to him. They knew that his grandfather was in prison for fraud.

In Geneva, family honour and financial honour are the same thing. Only two of the private banks are still entirely in the hands of the families which founded them. The others have survived by bringing in fresh blood, or linking up with bigger banks. Yet the banking families of Geneva remain linked by a thousand ties of kinship and intermarriage. In their code, any display of wealth is vulgar. It is all right to have a holiday home in Mexico; all wrong to drive a Rolls-Royce through the streets of Geneva.

They bring up their children to perpetuate this life. A banker's son does not behave like other rich boys. He does not go to night clubs, or engage in any activity likely to get him into the papers. And he must avoid all people tainted, however remotely, with financial impropriety. The boys at the exclusive school were behaving as they had been taught to behave.

Geneva today is an international city. Concerned young men, whose family is the world, fly in to discuss with other concerned young men how to check the encroachment of deserts. More than 150 international bodies have their headquarters here. Along the waterfront a dozen great hotels open luxurious arms to conferences.

Across the Rhone, behind the glittering shops, in rooms made creamy by sunblinds, the old life goes on. It has deep roots. In 1387 the Bishop Of Geneva declared that, whatever the Catholic Church might say about usury, it was all right for the moneylenders of Geneva to charge interest. He did not fix a limit. In 1536 the people chased their bishop out, and Jean Calvin, a French Protestant who happened to be passing, persuaded them to put him at the head of affairs. His subsequent declaration that 10% was a fair rate of interest was rather a restriction than a liberalization of existing practice.

Calvin banned adultery, gambling, dancing, displays of luxury, imported wine, religious views which differed from his own and, above all, idleness. The children went to school and the adults worked (except on Sunday, when church was compulsory). Hard-working Geneva prospered, and its prosperity was all the greater because it offered a refuge to fleeing Protestants.

Refugees who returned home showed their gratitude; when Geneva was threatened by Savoy, contributions poured in from England, Scotland and Holland. Refugees who stayed contributed their capital, their skill and their international connections. Their prestige became so great that in Geneva family pride operates in the reverse of the usual direction; indigenous families have tried to prove a descent from immigrants.

By the middle of the eighteenth century, the Council of Two Hundred, in Calvin's time an almost democratic institution, was a club of the great families. Jean-Louis Pictet (ancestor of the present Pictet family) had 75 relations on the council. Jean Lullin (ancestor Of the present-day Lullin) had 97. Jean Trembley (ancestor of practically everyone) could command a majority if his relations all voted together; they numbered 108. These were close relations; if in-laws and distant cousins were counted, everybody without exception was related to everybody else.

Geneva citizens outside the family circle demanded a share of the power. Throughout the eighteenth century the great families were fighting to keep what they had.

Legally, they were defeated; a democratic Geneva became a part of democratic Switzerland. But in many ways they are not defeated yet. They do not share the view of the big banks, that private bankers are doomed to extinction.

"Yes, there are only 22 private banks where there used to be 49," said Thierry Barbey, senior partner of Lombard, Odier. "But these 22 remaining ones are not less important to the Swiss banking system than when there were 49." (In fact there are 23 private banks, but some Geneva bankers leave Tardy, Baezner out of their calculations.)

As Pierre Mirabaud sits in his solidly nineteenth-century office at Mirabaud & Cie, he is surrounded by ancestral portraits, quite different in attitude and expression from the portraits in the stately homes of England. Instead of contemplating the flight of distant grouse, these early Messieurs Mirabaud are clearly doing sums in their heads.

A table of coats of arms, dated 1792, shows which families were officially listed as part of the Geneva bourgeoisie. The Mirabaud coat of arms is there. The bank has existed since 1819.

It is startling to find, amid these ancestral splendours, that vulgar object, a cash desk. Does Mirabaud & Cie ever descend to retail banking? "Only for our clients," explained Pierre Mirabaud. "If they want to change their money, they can do it here. You will see that the desk is not very busy."

One of the three partners of this bank is not called Mirabaud, but Henri Fauchier-Magnan. His brother is head of the Fauchier-Magnan stockbroking house in Paris. However, the Mirabaud bank has no legal connection with the stockbroking firm. The connection is personal; Henri Fauchier-Magnan married Marie-Rose Mirabaud.

Therefore it was still possible for Pierre Mirabaud to say: "We are a wholly-owned family bank, one of the two in Geneva." The other, he added, was Bordier. He did not mention, and apparently did not notice, the existence of a third family bank, Mourgue d'Algue & Cie.

With a staff of 10, this is the smallest private bank in Geneva. The building, however, has room for the customary two entrances, so that the clients going out will never meet the clients coming in.

Such discretion may, in this case, be superfluous. It is generally known who some of the clients are — the members of the Mourgue d'Algue family, which arrived from the South of France in 1947 with a great fortune, made originally in the colonies. The family is partly of Swiss origin.

The head of the family (and a partner in the bank) is Georges-Emile Mourgue d' Algue, who took over vast responsibilities at the age of 18, when his father died. Pierre-Yves Mourgue d'Algue, his younger brother, remembers little of that time, as he was only six. Besides taking his father's place on the boards of various companies, Georges-Emile completed his studies and became an economist. Pierre-Yves gained a wide experience of banking in the United States and Canada, with Blyth Eastman Dillon, Smith Barney and Nesbitt Thompson. After his return to Geneva he worked for Paribas.

Nobody is questioning the competence of the brothers or their reputation. "C'est une famille sérieuse," said one insider approvingly. "A serious family" in Geneva's terms is not one which reads good books aloud, but one with wealth enough to meet its obligations.

Why, then, are the Mourgue d'Algue brothers not invited to join the Groupement des Banquiers Privés Genevois? (Association of Geneva Private Bankers.) One outsider suggested that they could not join because they were still French, not Swiss.

But somebody in a better position to know said firmly that this had nothing to do with it. The reason was simply that: "Elle est trop jeune." In French a bank must be called "she" but to the English mind the phrase: "She is too young" suggests a blushing, dimpling bank, not yet allowed to go to grown-up parties.

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The Mourgue d'Algue brothers have owned their bank for only three years. Why was it not already in the Groupement when they bought it? It was then Pivot & Cie, founded in 1869, which did not make it too young even by Genevan standards. But the partner, Pierre Pivot (whose death put the bank on the market) was a Catholic. He was even reputed to have the Vatican as a client. Although half the population Of Geneva is Catholic, every bank in the Groupement is Protestant. As it happens the Mourgue d'Algue brothers are also Protestant, but their bank is still known as "the Catholic bank", or "le cavalier seul". (The lone horseman.) One partner remains from those days, Guy Burnier, who had been manager of Pivot & Cie since 1970.

The sharpness of the religious divide is peculiar to Geneva. In Lausanne, 40 minutes away by train, there are two private banks, one run by a Catholic and one by a Protestant. Few people either know or care which is which. People in Lausanne mention their religion only if pressed, and then in an embarrassed mutter, which one would call typically English if they were not talking French.

But in Geneva the question: "Are you all Protestants?" is greeted, at least in banking circles, with a ringing: "Absolument!" (Absolutely.) And then, with a trace of embarrassment: "Of course, Tardy, Baezner & Cie is Catholic. But it can't join the Groupement in any case; it's a limited company."

It is not. In 1975 Tardy, Baezner became a private bank. After the Herstatt crisis it was widely argued that the public would be less willing to respond to the solicitations of small banks, and that the small banks, therefore, might as well take advantage of the concessions which the Swiss law gives to banks which do not solicit deposits. Tardy, Baezner was the only bank which actually went private. The partners, apparently, still feel that their decision was a good one.

Like other private banks, Tardy, Baezner does not publish a balance sheet. Its last published balance sheet, for the end of 1974, showed capital and reserves amounting to about Swfr3.2 million ($2 million). Current account deposits, totalling Swfr23 million ($14.6 million) were covered by liquid funds and easily realizable assets, ensuring a high liquidity ratio. Then, as now, the bank concentrated on portfolio management. Commission income was Swfr4.3 million ($2.7 million).

Besides four partners with unlimited personal liability — Jean-Charles Tardy, Maurice-Paul Baezner, Roger Lautens and Andre-Pierre Tardy — the bank has a corporate limited partner, Tardy Baezner Financiére SA, to soak up the retained profits. This is a perfectly normal arrangement for a private bank; Pictet, Hentsch and Lombard, Odier do the same. Indeed, everything about the bank is normal, by the standards of Geneva, including its reticence about its clients. "Friends who will stay with us," is the formula. It carries discretion to the point of transacting stock exchange business through stockbrokers, so that its investment strategy should not become known.

There is one other private bank in Geneva which does not belong to the Groupement, Gonet & Cie. It is not Catholic and nobody seems concerned to keep it out; presumably it has its own reasons for not joining. As this (alone of all the private banks in Geneva) refused to talk to Euromoney, the reasons must be conjectured.

Not every small bank is enthusiastic about the underwriting of bonds. The Groupement is not a bond-underwriting syndicate. But its six members Bordier, Darier, Mirabaud, Pictet, Hentsch and Lombard, Odier — do also belong to such a syndicate. The two Lausanne banks — even the Catholic one — join the syndicate for the purpose of issuing bonds for the city and canton of Geneva. Some banks regard these local bonds rather as a traditional duty than as a source of profit. Pierre-Yves Mourgue d'Algue said that he thought the obligations of bond underwriting might be burdensome for such a small bank as Mourgue d'Algue. "And we want to dispose freely of our investment policy."

Georges Urban, one of the partners at Hentsch, explained the workings of the syndicate to Euromoney. On his desk was a thick but orderly pile of telexes — invitations to participate in the underwriting of Swiss franc bond issues. At present Hentsch receives these on behalf of the six Geneva private banks, which take joint decisions whether to participate in a bond issue. Each of the six takes it in turn to speak for the rest. From the beginning of 1980 until the beginning of 1985 it will be the turn of Darier & Cie. There is a similar arrangement for bonds denominated in currencies other than the Swiss franc, the spokesman in this case being Pictet & Cie.

"We are sometimes — not very often — invited to be managers, or co-managers, but we are always invited as underwriters, both of public and private placements," Urban said. (By "we" he meant the group of six, not Hentsch alone.) "We have just taken part, for example, in a private placement for New Zealand. We are getting one or two of these invitations a day."

The six traditionally manage the bond issues of Geneva, both the city and the canton. "We are just discussing a new issue for the Canton de Geneve," Urban said. "At which rate? At which price? For how long?" In this case the discussion is purely about the terms; it would apparently be unthinkable for the group not to take on the issue.

The group, Urban explained, has been in existence only since 1942, but it succeeded a much older body, l'Union Financiere Geneve. "We have been in the bond market for more than 100 years." Not many banks in the world can say that.

One recent Swiss franc issue, the 3⅝% Australian bond, drew anguished grunts from some Geneva bankers. They claim that they take such paper on to their own books, not into their clients' portfolios. They are certainly far more scrupulous in this respect than the bigger banks.

At Lombard, Odier & Cie, Barbey talked about the international implications of the bond syndicate. "Geneva has a number of Chinese officials since China joined the UN. The opening of China to the world in the last few years has been very interesting. If, by extraordinary — and this is something that would have been unthinkable six months ago — if by some extraordinary development the Chinese did issue bonds in the Euromarket, then from some of our rather conservative clients we have already heard expressions of interest. But the Chinese will go into everything else — every other form of borrowing — before they try bonds. Why? For historical reasons. In the past, when they issued bonds, and couldn't keep up with their debt service payments, that led to foreign invasions. Besides, with a bond, they can't control into whose hands it will fall. It might turn out to be their — the Russians, for example — enemies who held their bonds. And so before they issued a bond they'd want all sorts of guarantees."

Did Barbey mean guarantees of what would happen in the secondary market? How could that be possible?

"It's not customary to give guarantees beyond the underwriting period. However, now that the Bank of China is opening in Luxembourg, that may bring them closer to the idea."

At Mirabaud & Cie, Pierre Mirabaud, while disclaiming any knowledge of Chinese approaches, gave a clue to the possible reason for Chinese interest in Geneva. "What accounts for our strength in underwriting," he said, "is that we keep this paper."

It is the social side of all this which fascinates the outsider. If the syndicate issues and underwrites bonds, what does the Groupement do? "It is a club which meets once a month, said Urban of Hentsch & Cie. "Though, of course, its members may see one another more often than that. You would expect brothers-in-law to see each other more than once a month." (Jean-Claude Hentsch has a brother-in- law at Lombard, Odier, next door.)

The Groupement has a full-time secretary, Jean-Daniel Vermeil, an economist whose father is a Protestant pastor in the Canton de Vaud. He sends documents round to the bankers, and suggests what they ought to discuss at the next meeting.

The chairman of the Groupement is Barbey of Lombard Odier, but he stressed that he was not in any sense its leader. "Each bank provides a chairman for six months. They take it in rotation. At the moment it's Lombard, Odier; therefore I'm chairman."

Some of the social contacts between the meetings take place at the Cercle de la Terrasse. "It is just a pleasant place to be," Urban said. "Yes, of course the press is excluded — just as it from a London club."

Was there any justice in the complaints of foreigners, that the Geneva bankers were standoffish, never inviting even their social equals to their homes?

"The family life of Geneva is very much a French family life," said Urban. "I have an English wife, so I know what the difference is. Far more time is devoted to visiting cousins, aunts and so forth; that leaves less time for social contacts outside the family. As for giving cocktail parties in our homes — it is not the usual way of entertaining."

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The family circle does broaden out when it must. At first sight Hentsch & Cie looks like the most clannish and traditional of all the Geneva private banks. It is certainly the oldest, founded in 1796 by Henri Hentsch. The present senior partner is Robert Hentsch. His younger brother, Leonard Hentsch, is a partner; so is his cousin, Jean-Claude Hentsch. All three are proud of their ancestor, whose niche in history is that he refused to finance Napoleon's Italian campaign. The campaign was a success, but Napoleon's ultimate fate proved the ability of Hentsch as a long-term forecaster. A later Hentsch did well by deciding that railways were more than a passing fancy.

Hentsch & Cie, however, is not living in the past. Nor is it living within the family. Five of the partners are quite unconnected by blood or marriage, having been brought in solely for their expertise. One partner, Maurice Aubert, is a lawyer whose exposition of Swiss banking secrecy is regarded as definitive.

The partner who talked to Euromoney, Georges Urban, is also a lawyer, though he has never practised in the courts. He has been a stockbroker, and is a member of the committee of the Bourse de Geneve (the Geneva Stock Exchange). Like many Geneva bankers, he looked sunburned and fit.

Lombard, Odier has, among its partners, Augustin Lombard and Marcel Odier, but they have no authority to sign on the bank's behalf. The senior partner is Thierry Barbey, who said: "That only means that I have been in the bank for 22 years — longer than anyone else. Somebody has to chair the meetings and I do that. I have no dictatorial power."

Another partner is Bernard Noetzlin, full-time head of research.

But when the outside experts move into the family circle, they conform to the family ways. The first rule is to avoid all vulgar display.

"If you see a Rolls-Royce in Geneva," Urban said, "look at the number plate. It will probably be foreign. Geneva bankers have Citroens, BMWs, Peugeots, perhaps here and there a Mercedes. The banker's wife has a Mini or the smallest Peugeot, easy to park."

The children, too, are brought up to conform. A young member of the Pictet family was at St. Gall University in 1968, the year when the whole student body of Paris took to the streets. Students followed their example everywhere — except in St. Gall. There it announced that any student who joined any would be instantly expelled. Young Pictet obeyed. Everyone did.

The single recent case of a young man who did not conform has left such a painful impression that nobody can talk about it. By outside standards nothing very terrible happened; the young man took money from a friend in Norway to a friend in Sweden, and went by way of Denmark, where the sum he was carrying was found to infringe the currency regulations. He had acted without the knowledge of his father's bank. He had got into the papers. This is enough to exclude him from the bank for life.

But, if everyone is virtuous and circumspect, how could it happen that in May 1977 Leclerc & Cie went bankrupt? Robert Leclerc is a Protestant; he belonged to the Groupement; he belonged to the Terrasse. And he lost something like Swfr400 million ($253 million) of his client's money.

Robert Leclerc is still in prison, awaiting trial. The Swiss Banking Commission has described his case in the following terms:

The Geneva private bank Leclerc & Cie had already repeatedly engaged the attention of the Commission in connection with real estate investments which it had undertaken. At the end of 1976 the bank was directed to recall a substantial credit which it had granted to the general partner Robert Leclerc. The bank gave a formal assurance that it had complied with this directive. It later emerged that the credit had merely been taken over by a foreign shadow company financed with customers' funds.

When, in mid-February, rumours circulated that Robert Leclerc was in personal financial difficulties, the statutory auditing agency for Leclerc & Cie was instructed by the Commission to ascertain the facts of the case. The investigation uncovered various irregularities in the running of the bank and showed that there existed a concrete danger Of excessive indebtedness, so that at the start of May 1977 the bank was ordered to suspend operations immediately. Leclerc & Cie filed an application for sursis bancaire.

The report of the provisional receiver appointed by the Geneva Cour de Justice revealed that on the basis of the bank's responsibility for the risky management of customers' safe-keeping accounts, the possibility of excessive indebtedness could not be ruled out. The application for sursis bancaire was therefore changed to an application for sursis concordataire.

[Sursis bancaire is a legally sanctioned delay of payment; sursis concordataire is bankruptcy.]

The report of the provisional receiver disclosed numerous infringements of the law by officers of the bank. For this reason, and because of the lack of a guarantee of impeccable conduct of business by the managing partners and uncertainty as to the solvency of the bank, the Commission ordered at the Start of July 1977 that the bank's licence be withdrawn. In mid-July the Geneva Cour de Justice granted Leclerc & Cie sursis concordataire.

The competent Geneva authorities have instituted criminal proceedings in connection with offences under ordinary law. The Federal Finance and Customs Department is conducting proceedings in connection with offences under the Banking Act, notably the provision by the partners of false information to the Banking Commission and the violation of bookkeeping regulations. The Société Bancaire Barclays (Suisse) SA has contracted with the employees of Leclerc & Cie and with customers holding safekeeping accounts to take over certain assets, including the bank premises.*

[This translation from the original German of the Commission's report comes from X, X & Cie, the Private Bankers of Switzerland, by Gunter Woernle, Welinia SA CH-1211 Geneva 11. This book, published last year in French and German and this year in English, was invaluable to Euromoney's correspondents. Its factual accuracy was acknowledged by every banker they met.]

"Robert Leclerc? We all called him Bobby, said a non-banking resident of Geneva. "He was charming — the most charming salesman you ever met in your life." Another old acquaintance commented, more sourly: "When it comes to business any Geneva banker can be charming."

It was "Bobby's" brother, now dead, who was credited with having the better banking brain. In 1964 their firm (then called L'Harpe) was admitted to the Geneva Stock Exchange, in preference to another bank which promptly went broke because of the real estate activities of Trujillo's banker, Juan Munoz. Shortly after Madame L'Harpe died, the brothers changed the bank's name, and in 1970 they were admitted to the Groupement after what some of its other members describe, with hindsight, as "some hesitation".

Even after his brother died, Robert Leclerc had four partners with unlimited laibility. How could they, and the auditors, let him do as he pleased? "It was a question of personality." said a fellow banker. "Leclerc had a strong personality. He surrounded himself with young people that he had totally at his devotion. There was nobody to stand up to him — no give and take. He could not concede that he had made a mistake. When things started to go wrong — and they do go wrong sometimes for all of us; retrospectively we see how the dollar has fallen, and that we did not 100% protect our clients — he was was not capable of accepting loss of face.

"That was why he resorted to falsifying. If a client's account showed a loss, he would quickly move money into it from another client's account, and with his own hands type out a new statement to give to the client. 'There you are, you've made a profit.' Sometimes we have to show a loss to our clients. Leclerc was fatally lured into becoming a real estate tycoon. He invited many people — indeed, he once invited all the private bankers of Geneva — for a sports weekend. He proudly showed us his ski centre. It was bad luck in a way that the real estate business in Switzerland became difficult.

"Three things happened: a law was passed that no foreigner could buy land in Switzerland; the oil crisis meant that in any case fewer foreigners could afford to; and the tax laws affecting real estate development were tightened up. Leclerc thought that if $20 million, say, was required to build the centre, you needed only £l million, because as each part was built you could sell the flats or the villas. But the clients did not rush so much any more. So he was caught in a totally unexpected thing. He could not admit failure. He went to various clients: portfolios, sold good securities and replaced them with shares in a Panama company which was really just a mailbox for the winter sports scheme."

The scheme which led to Leclerc's downfall was at Aminona in Le Valais. Many respectable and competent people, including some of the Mourgue d'Algue family. are believed to have put money into this.

There was, at the time, no reason why they should not. Earlier, Lombard, Odier had decided that one of its partners should go on the board of the company which developed Anzere, another resort in Le Valais. This ran into the same difficulties as Aminona, but overcame them and is now a going concern. "The resort is not a huge success," said Barbey of Lombard, Odier. "But it is not a disaster."

Some friends of Leclerc have argued that clients who had given him authority to deal in real estate on their behalf withdrew this authority too hastily when things went wrong.

The first unfavourable publicity to hit Leclerc came from an entirely different source. At the end of 1976 it was revealed that he had been on the board of a Luxembourg company, Sodetex SA, in which the Prince de Broglie had been interested. The murky nature of the Prince's dealings emerged after he was murdered in Paris. Sodetex was alleged to have been a subsidiary of the fraudulent Spanish company Matesa. Leclerc said that his interest in the company was nominal.

Leclerc's fellow bankers first heard the news of the impending crash on Thursday, May 5, 1977. "I didn't sleep for the next 80 hours," one banker said. "It was terrible, I'd given up smoking 18 months before, but I started to chain smoke that weekend. On Saturday at 7 p.m. we sat down to try and untangle the situation and didn't finish until 3 a.m. on the Sunday, when the bank applied for sursis bancaire."

The loss of credit, which the bankers feared would follow, affected each one as an individual. As Barbey of Lombard. Odier told Euromoney: "We are not private banks; we are private bankers." As if the limited liability company had never been invented, each partner in a private bank stands to lose his whole personal fortune.

"The Monday moming was the worst," a small banker said. "My partners and I arrived at the bank at 7 a.m., expecting a rush of clients come to withdraw their money. We'd sent for the maximum in liquid funds we could lay hands on. We waited and waited . . . 7.30 . . . 8 a.m. . . . and still as the morning wore on no one arrived. Then, late in the afternoon, we felt the first repercussions — a trickle of Leclerc's former clients, transferring to us."

Perhaps because outsiders are not clear about the difference between a private bank and any other Swiss bank, the disgrace which the private bankers of Geneva felt so keenly did not affect their customers. A few days later, the Crédit Suisse gave a spectacular press conference, revealing that its Chiasso branch had lost over Swfrl billion — four times the sum originally thought.

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The Chiasso scandal eclipsed the Leclerc scandal to the outside world, though not inside Geneva. One of Leclerc's partners killed himself. Another former associate died in mysterious circumstances, in France. Leclerc himself went into hospital for a serious operation, and was not arrested until January 1978. The examining magistrate is pursuing his enquiries, as is usual on the Continent, behind closed doors.

The Association of Swiss Banks has now tightened up the rules. The client who entrusts his funds to the bank to invest must now do so in writing, and not to any one person, but to the bank as a whole. Only with the client's specific authorization may the bank invest these funds in real estate, non-precious metals and commodities. It must not invest in options at all. The client must not be put into debt, actually or potentially — for example, left with liability to pay for a real estate scheme which has turned sour.

These rules apply to all Swiss banks but are most vital to the private banks of Geneva, because about three quarters of all money left with them is managed on a discretionary basis, whereas only about a tenth of deposits left with the Big Three are discretionary.

The surviving private bankers insist that they were keeping to these rules in any case. Pierre Mirabaud, for example, when asked what could be done to prevent such a thing from happening again, said: "If we stay with what is our business, we do not need to take any other steps. Individuals have tended to go out of those borders; the fault is theirs, not of the banks. We stick to our way of doing business — the bank does not deal for its own account in real estate, foreign estate hedging or commodities."

He stressed the words: "For its own account." As several bankers remarked, there are clients who want to deal in those things. Not everyone would try to dissuade them.

"We understand the problems of real estate," said Pierre-Yves Mourgue d'Algue.

The Mourgue d'Algue family, long before they bought the bank, founded a real estate fund, UNIM (Union Immobiliére Suisse) which has developed buildings in the centre of the town.

"If you build in the centre of Geneva, that is still a good investment, which has been better than the stock market," Pierre-Yves Mourgue d' Algue explained.

Each banker has his own successes to recount. At one time Hentsch took its clients into Italian shares. "And we came out at the right time," said Georges Urban. He pointed out how active the bank had been in helping to set up mutual funds: American Securities Co, Latonia Investment Company SA, Europafonds, Facel Fund, Inespa, Unifonds and the Japanese one, of which Hentsch is particularly proud, Samurai Portfolio.

Other sources maintain that Latonia, set up jointly by several Geneva banks, has stagnated because it was too general. No bank likes to reveal its investment priorities to its competitors.

There are as many investment policies as there are banks — perhaps more. It has been rumoured that, within the same bank, one partner would in the past operate one investment policy, one another. The regulation about entrusting money to the bank as a whole is intended to prevent this.

"We know we are in a very difficult job," said Pierre-Yves Mourgue d' Algue. "To know whether the United States — or perhaps another country — will be a good place to invest next year is difficult, and the consequences of an error are very great. However, we have done quite well. We are one of the first to move out of long-term Swiss franc bonds. We have done other things too that turned out well, but I mention that in particular because we wrote all our customers a letter about it. That has been very rewarding."

"We try harder," he added, quoting the Avis Hire slogan with a smile, "because this is a little bank."

Another little bank shows its French clients the advantages of gold. "Suppose in 1914 you'd had a million French francs, which is 50,000 gold Napoléons. And suppose you had used them to buy Ffr1 million of government bonds. Do you know what you'd be left with now? Ffr10,000 — not enough to buy the smallest car. But if, instead, you had kept the 50,000 gold Napoleons, they would now be worth Ffr20 million." (Nearly $5 million.)

If the clients are thinking in Swiss francs, rather than French francs they have a still more serious problem. One small banker said that clients had come to him in despair, after losing 90% of their capital (in Swiss franc terms) through the clumsy portfolio management of a big bank. They had only to buy the wrong dollar stocks to lose twice over — first through the fall of the stock, and then through the depreciation of the dollar.

The dollar is still universally distrusted even at its present levels. "The dollar is suffering from cancer, was one typical comment." There may be periods of remission; indeed, I think it will be stable enough for the next six or twelve months, but…" The underlying worry is not only the US inflation rate, but what is seen in Geneva as the monumental overhang of external dollars. Nevertheless most banks have some funds in dollars. Here the second stage of their investment thinking comes into play. Once the currency is decided there is the choice of instruments, and the lure of Wall Street is still strong. So a bank may hold only 15% of its funds in dollars, yet have more money in Wall Street than in the stocks quoted in a more favoured currency, such as the Dutch florin. Within the United States the favourites at the moment seem to be oil and oil-related stocks. Coal reserves loomed large, and every portfolio seemed to contain its quota of Schlumberger, the oil service firm.

One banker said he always asked his clients: "Do you want to be happy? If so, count in your home currency. Or do you want to be unhappy with our performance? In that case, think in Swiss francs." More and more clients are thinking in Swiss franc terms. "This is natural," one banker said. "If they come to us it must mean they are thinking in our currency." The Deutschemark and the Dutch florin are the only popular foreign currencies. As for sterling: "No, I don't think North Sea oil makes up for British trade unions."

Some of the proudest items in the banks' portfolios are those Swiss stocks — mostly in banking and insurance — which have shown positive rises even in Swiss franc terms.

Are some of the banks too cautious? Pierre Mirabaud said proudly: "We have always had great caution. Clients who come to Switzerland look for stability. It is not our role to take high risks… Some people call us unsophisticated, but our clients stay with us; they grow in numbers; they make money."

One does not have to be a banker to give investment advice. Along the stately rue de la Corraterie, for nearly two centuries the centre of private banking, and in other equally correct locations, new brass plates have appeared. They announce the existence of gérants de fortune (portfolio managers) and gérants d'immobilier (real estate investment managers). Some of these advisers, like Kramer & Cie, are well established and respectable. Others are alleged to have lost as much as Swfr50 million ($32 million) for a single client, who had no legal redress because it was a matter of incompetence, not fraud.

Some of them are reputed to manage funds totalling Swfr1 billion ($660 million) without being subject to the same legal discipline and auditing rules as the banks. It is a very indignant Geneva banker who finds himself confused with one of these.

Who, in the opinion of the clients, gives the best investment advice? Though bankers must not talk about their clients, clients frequently talk about their bankers, and it is therefore known that Lombard, Odier manages the pension fund Of the United Nations. (Perhaps also the pension fund of the CIA.)

One may draw what conclusions one pleases from the fact that Hentsch publishes its introductory brochure in three languages: English, French and Arabic. "A large geographical distribution of clients," admitted Urban of Hentsch. As well as the old French aristocracy who, according to rumour, were the traditional clients of Hentsch? Urban, smiling, would only repeat the phrase: "According to rumour . . ."

In March 1979 a new commercial bank was opened in Geneva, Banorient, with 49% Arab ownership and 51% Swiss ownership, the principal shareholder on the Swiss side being Hentsch.

Rival banks, without directly saying so, let it be understood that they too have Arab clients. "The Arabs we are interested in know English," one remarked. But it is, above all, the French client who feels happy in Geneva.

Keeping the customer happy is regarded by the Geneva bankers as their particular art. One of them said: "We are not investment advisers at all; we are psychologists. When our clients visit us they want, above all, to talk about themselves. At the end of an hour they've often forgotten completely about their portfolios."

The most resounding compliment from a customer has been paid by Mellon Bank NA, Pittsburgh, to Pictet & Cie. The two banks have gone into partnership to form a company which will operate in the Bahamas, managing the funds of institutional investors — and of private investors too, if they have funds large enough to be worth managing.

Why Pictet? Barker French, vice-president of Mellon, said simply: "They're the best." For some years, Mellon's investment advisers have made a habit of dropping into Pictet & Cie for a chat whenever they pass through Geneva. Their talks have left them in no doubt about the quality of the world-wide knowledge available there.

Certainly Pictet is among the oldest and grandest of the Geneva banks. Among its founding fathers in 1805 were members of the Necker family. (The Geneva banker Jacques Necker became Finance Minister to Louis XVI, and might have prevented the French Revolution, if his work had not been sabotaged by court intrigue.)

Pictet is reputed to be the biggest private bank in Switzerland, managing accounts of about $4 billion, with a staff of some 300. Besides the family, it has always found room for promising outsiders, traditionally brought into the bank straight from school, without going to a university. (One of them was Hans Vontobel.) It has recently brought in a more mature expert, Pierre Lardy, former manager at the Union Bank of Switzerland in Geneva. Over 35 members of the staff, experts from all sectors, take part in the discussions on investment policy.

Members of the Pictet family who did not care for banking have been prominent in other fields. One invented what may have been the world's first refrigerator. Another was a pioneer of car design.

Pictet has a Canadian subsidiary, Overseas Securities and Co Inc, which holds a seat on the Boston Stock Exchange. Long before the deal with Mellon, Pictet International Ltd in the Bahamas was active as an underwriter of international issues. Fingest Inc, established in 1974 in Quebec, serves customers who cannot make use of a Swiss bank. Pictet Advisory Services (Overseas) Ltd has been created to promote the bank's services abroad.

Pictet's closest rival in size and importance, Lombard, Odier, has subsidiaries in New York, London and Bermuda. The head of the Bermuda office, Alfred C. Ulmer, is a former American diplomat who has also been "director for diversification" of the Niarchos Group. Lombard, Odier Company of Canada, based in Montreal, controls (through an affiliate) seats on the stock exchanges of Boston and Philadelphia. Lobarco SA, a joint Venture with the British merchant bank Baring Brothers, caters for customers in the Middle East. Another subsidiary, Secrétariat Privé et Gestion SA, Geneva, provides bookkeeping, insurance and tax advice.

"We have always invested internationally for our clients, because Switzerland is so small that the money could not all be left here," said Barbey of Lombard, Odier. "Now our experience has become very useful to these large investors. This is nothing to do with banking secrecy; this money has paid taxes in whatever country it comes from. Pictet is to advise the clients of Mellon. We at Lombard, Odier have not made arrangements with any one American bank, but we already manage funds for several of their clients. We have gone into the institutional field because all these people need international investment advice. Rather than work with a particular American bank, Lombard, Odier prefers to contact specific clients. Then it works out the details with the client's own bank."

Was it true that, in Order to give international advice, Lombard, Odier had a research department which would do credit to a big bank? "Well, besides Bernard Noetzlin, who is our full-time head of research, we have nine analysts and three statisticians — very important people — and we have just signed an agreement to have access to a databank. That alone is going to cost us Swfr70,000 a year." ($45,000). "The research people go to prospective clients, and give demonstrations of what they can do. We call it a road show."

Some observers maintain that Lombard, Odier, rather than Pictet, is the best. It is said that 70% of the funds this bank manages come from big institutional investors.

Next in size comes Hentsch, with a staff of about 180 in Geneva — and only in Geneva. It is said that one of the family, on being asked whether Hentsch & Cie had branches abroad, replied: "We do not have branches; we just have friends."

Yet there is that brochure in Arabic… "Robert Hentsch is vice-president of Union Investment Gesellschaft, Frankfurt," said Urban. "We have changed the type of our clientele and are reaching other banks."

Urban, however, denied the rumour that Hentsch would not accept a client who deposited less than Swfrl million. "No, we accept smaller accounts. If, for example, a father dies, leaving his son with less than that, we do not tell the son to take his account elsewhere."

What about new clients? "If the client is ready to pay the basic minimum fee, we do not mind how small the initial deposit is." There are sound reasons for a high basic fee. To give good investment advice the bank must employ good people. In a city where a competent secretary can earn $25,000 a year, an investment counsellor cannot be cheap.

The institutional investor is better able to pay for such a service than any but the very wealthiest private investor. The struggle to keep going on private business has, within the last 12 years, proved too much for over half the private banks in Switzerland. Not that most of those who disappeared did so disgracefully, like Leclerc; a much more typical fate is that of Ferrier Lullin.

There still is a Raymond Ferrier and a Jean Lullin (though the latter has retired from active participation). Indeed, there still is a Ferrier Lullin bank, keeping its clients and advising them in strict confidence as before. But of the bank now belongs to the Swiss Bank Corporation, which is reputed to have paid Swfr60 million ($40 million) for it.

For this the big bank got the building and the name, but not the secrets of the clients, which remain inviolate with the old management. The only visible novelty is that a woman looks after some of the portfolios. Even this is not unheard of; during the First World War Augusta Tardy took her husband's place and presided over Tardy, Baezner & Cie.

Anywhere else, the takeover would have looked very sensible. In Geneva, it looked like a betrayal. Ferrier Lullin was the oldest member of the Groupement, dating from 1795. Its loss, even through perfectly legal and honourable means, was felt in Geneva more deeply, perhaps, than the Chiasso scandal.

The affairs of Italian-speaking Switzerland seem remote; a train journey from Geneva to Lugano takes nearly seven hours, with two changes, and Lugano has no airport. (The nearest is Milan.) Chiasso, on the very border of Italy, is remoter still.

Yet the Chiasso affair affected everyone. As a result of it the bankers of Geneva, like every other banker in Switzerland, signed a convention by which they promised the Swiss National Bank that they would not take money from a client whose real identity they did not know; that they would not accept the proceeds of a crime; and that they would not assist in the flight of capital from another country, or in a fraud on another country's tax laws.

All the bankers who talked to Euromoney's correspondents assured them that these rules merely codified existing practice. They had never accepted a centime from anyone they did not know.

Yet the Ferrier Lullin form for new clients contains the following possibility.

"The undersigned declares that he is acting as an agent, bound by legally protected professional secrecy, or as a trustee. In this capacity, he confirms that he knows the real owner to whom belong the valuables entrusted to the bank, and that, having used all due diligence, he has no knowledge of any fact which might indicate that the owner is making improper use of banking secrecy, Or, in particular, that the valuables in question have been acquired in an unlawful manner."

Thus, Ferrier Lullin is content if a lawyer whom they know declares that he knows the client.

At Lombard, Odier, Barbey said: "The private bankers do not advertise, so we get only people who come by personal recommendation. Our first question to a new client is: 'Who recommended you to come to us?' Which is a tactful way of asking: 'Who are you?' We must make sure of his identity; we have to prove to auditors that we did our best to establish that."

Yet all the bankers will take an assurance from a lawyer whom they know, as Ferrier Lullin will. Their reasoning is that a respectable lawyer guarantees a respectable client.

If the banker knows his client to be respectable, he must know that the funds deposited are not the proceeds of a crime. He has one strong practical reason for making sure of that. Swiss banking secrecy goes only as far as the courtroom door. Once inside, a banker is on oath like anybody else, and must give evidence about a client who is charged with a crime. The mere thought of talking about a client's affairs in public makes a Geneva banker turn pale.

It was an outsider who muttered: "Of course, the law is relying on the banker's honesty that he will say: 'Yes, Monsieur X is my client'."

Vienna's attempts to become a banking centre, by telling depositors that in Austria secrecy is absolute, have aroused virtuous indignation in Geneva. Greece is accused of attracting depositors in the same way. Such rivalry does not seriously worry the Geneva bankers; they believe depositors will prefer their expertise to that of any Austrian or Greek; but they regard it as underhand.

Their own morality, however, calls for careful study. Maurice Aubert, a partner at Hentsch & Cie, has written a book on Swiss banking secrecy which is unfortunately out of print. However, he gave Euromoney a copy of his lecture to the Swiss Federation of Lawyers, delivered in May 1979.

From this it is clear that a Swiss banker must not use banking secrecy to cheat a lawful heir out of his inheritance. That would seem to remove the sinister implications from a fairly popular device — the joint account which can be operated by one of the signatories, even after the death of the other. This may be a way of providing for a mistress. But to go on providing for her after the lover's death, at the expense of his legitimate heirs, would be contrary to Swiss law. (If the heirs are outside Switzerland, and know nothing about the account, the position is, perhaps, less clear.)

Banking secrecy cannot be used to cheat the creditors of a Swiss citizen who has gone bankrupt. There is an agreement between Switzerland and France, so that a man who goes bankrupt in France cannot conceal his Swiss bank account from his creditors. What happens if he goes bankrupt in another country? It would be easier to find this out if the Geneva bankers would admit that any of their clients ever, in any circumstances, go bankrupt. At the most a client may have a short-term liquidity problem, to be solved by a discreet loan.

The law about tax fraud would seem, at first sight, to be clear. Both the law, and the convention which all the bankers signed after Chiasso, forbid them to accept funds obtained by cheating the revenue. But, in defining tax fraud, the Calvinists have outdone any Jesuit in subtlety.

The distinction which Aubert explains is between soustraction d'impot, about which a banker need give no information unless in exceptional cases, and fraude fiscale ou escroquerie au préjudice du fisc, about which he can be compelled to give evidence.

Soustraction d'impot means not telling the taxman everything. Fraude fiscale means telling him an outright lie. "It is the difference between a sin of omission and a sin of commission," said Barbey.

Another expert said: "This is a nuance which we in Switzerland understand very well. Simply failing to report all your earnings to the authorities is not a crime here. Surely you as a writer would not report what you earned in another country?" (He was underestimating the British Inland Revenue.)

"Suppose you are left a legacy in another country, and the tax authorities of your country do not know," one banker said. "It is the client's responsibility to report it — not the bank's."

A small banker said: "I know all my clients personally; it's impossible that any of them should be crooks. But whether they have declared everything to the tax man — well, how can I know that? I would not have any great scruples here –" he patted his waistcoat "– because who are the greatest robbers? The governments!"

"These countries with strict taxation laws!" another banker said contemptuously. "Italy and France, for example — they all have a black economy where people work for cash."

However this casuistry may satisfy Calvinist consciences, it is doing nothing to prevent another Chiasso scandal. The Swfr1 billion deposited by rich Italians at the Chiasso branch of Crédit Suisse may have been the proceeds of crime, but it is probable that most of it had simply not been reported to the Italian tax authorities. (Your correspondent heard this being openly said in Milan last year.) It would therefore be just as acceptable now in Geneva as it was then in Chiasso. And it would be as impossible as ever for the Italians to sue if the money were lost.

The protests of neighbouring countries are regarded in Geneva as attempts to bully poor little Switzerland. "We have been subject to great pressure in some quarters," one banker complained. "Other governments say to us: 'If you Swiss change the law about banking secrecy, and allow us to enter and seize accounts of our citizens, we shall be happy to sign this international agreement'."

One banker does insist that his American clients produce proof that their accounts have been passed by the US tax authorities. This precaution is due to the bank's broking activities in the US.

Geneva bankers are sensitive about the other accusation commonly levelled against them — that they provide a handy bolt-hole for notorious tyrants.

"Trujillo of the Dominican Republic went to every private bank in Geneva," said one authoritative source. "They all turned him down." Then what about Somoza, the recently-exiled president of Nicaragua? "Somoza. . . Well. . . It's difficult to interfere in the affairs of another country."

There is an opposition to the bankers within Switzerland. It is, however, incoherent and ill-informed. There is nobody on the Swiss left to compare with the Italian Communist expert on banking, Professor Gianni Manghetti. A Geneva professor of sociology, Jean Ziegler, has written an attack on the banks, Une Suisse au-dessus de tout Soupçon (A Switzerland above Suspicion). It would be flattery to call this book hysterical. Its cover displays, as if it were a point against the banks, what is perhaps the greatest advertisement for them — Voltaire's remark: "If you see a Geneva banker jump out Of the window, jump right after him. It's sure to bea way of making money."

Have the Geneva bankers jumped out of any good windows lately? There is, of course, the interest that Barbey of Lombard, Odier shows in China. This he shares with the world. But he was just off on a visit to Bhutan. Why Bhutan? "I have a little private hobby myself — to study the Far East. It started when I began to think what I should do after retirement. It struck me that it would be too late then to develop new interests. So I founded a little Asian Society." Behind him was a magnificent Chinese cabinet; on the walls were Chinese works of art.

"The Asian Society is not directly leading to business at this stage, but . . ." Bhutan is in the Himalayas. Some Swiss people are sponsoring a cheese-farming scheme there. It's run by the Pro-Bhutan Foundation, which is linked to Helvetas — that's the body which co-ordinates all non-government Swiss aid to developing countries."

Bankers' hobbies tend to lead somewhere. Guillaume Bordier, an engineer as well as a banker, took a great interest in civil aviation. Today his nephew Philippe Bordier represents Bordier & Cie on the board of Swissair. Jacques Darier is happy that his hobbies, bridge and tennis, bring new clients to Darier & Cie. Perhaps the slopes of the Himalayas have some vital connection with Geneva's future.