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Consider Darier Hentsch, for example, a bank founded in 1796, which served as paymaster to Napoleon's army. There are no teller counters here. The bank does not make loans. Though it is possible to have a checking account here, what the bank really does is protect and manage a portfolio of investments. Clients must have a minimum of $1.5 million in "investable" funds--meaning apart from one's house and employer-linked retirement accounts. Says managing partner Benedict Hentsch: "The only thing we do is money management. It's the only thing we have ever done." Darier Hentsch is modest by today's standards, handling some $35 billion for 20,000 clients. Like similar Swiss banks, it charges a fee of roughly 1% of the client's assets.
Down the street, sheltering behind a stone-and-wrought-iron facade, is Pictet & Co., which has steered its clients past such annoying bumps in the road as the Franco-Prussian War and the Russian Revolution. Like Darier Hentsch, Pictet manages about $35 billion in private client portfolios. "We go far in serving our clients," says partner Ivan Pictet, an eighth-generation banker whose family was prominent in Geneva 300 years before Calvin started preaching there. "Our bankers are very often used as intermediaries between children who are fighting or in things like divorces." If you hold an account at Darier or Pictet, no one other than a criminal court can find out--and not even it can if the alleged offense is tax evasion. In Switzerland that's considered a civil, not a criminal, matter.
England developed a more localized form of private banking--its prominent private banks, such as Coutts ("banker to the Queen"), tended to serve only a national clientele--and the U.S. had distant cousins of the Swiss banks in the form of trust companies and "family offices." But Switzerland's 400 banks have long been the industry's global heart. So much wealth flowed into the country--primarily from its highly taxed neighbors but also from Latin America and Asia--that it now holds some $2 trillion, or one-third of the world's wealth that resides outside its country of origin. Switzerland also boasts what are by far the two largest private banks in the world: UBS, with $580 billion in private-banking assets; and Credit Suisse, with $292 billion.
Until the mid-1980s few financial institutions followed the Swiss model. But then the U.S. began to deregulate its banks and brokerages. Suddenly the old Swiss idea of low-risk, fee-based money management seemed appealing to commercial banks like Citibank and Chase, which were suffering diminishing returns from commercial banking. The new industry also appealed to brokerages like Merrill Lynch, eager to invade the banks' turf. These newcomers and their arriviste clients liked the "private banking" moniker too, with its Anglo-Swiss overtones.
As the Americans, and then other Europeans, have established their own private banks, they have offered affluent customers primarily asset management but also a wider range of services, from checking accounts to liability insurance. And while clients of the original Swiss private banks were happy in times of turmoil to be able to count on the return of their capital, today's clients are keenly interested in obtaining high return on their capital. Most of them get it, through well-crafted portfolios of domestic and foreign stocks and bonds, mutual funds and hedge funds.