Founded in 1957 in Lugano Banca del Gottardo was once one of the first stops over the border for Italian investors fearful of economic and p...

Founded in 1957 in Lugano Banca del Gottardo was once one of the first stops over the border for Italian investors fearful of economic and political turmoil at home. Those days are long gone, apart from building up business in Switzerland, Banca del Gottardo has itself crossed the Swiss-Italian border to come closer to its largest foreign clients base, fanning across Italy's affluent north to capture the new wealth generated by company sell-offs, IPOs and stock options. The bank also has offices in Zurich, Geneva and Lausanne as well as Luxembourg and Nassau. Last November it opened an affiliate office in Bergamo. Next month it will open a representative office in Milan and in the next couple of years, it hopes to open up in Venice, Turin, Genoa and Florence. "The timing was perfect, although we had no idea about this when we started the procedure 18 months ago," Luca Soncini, executive board member responsible for private banking, said of the Bergamo office. The opening coincided with the announcement of an Italian government tax amnesty, which allows investors to repatriate their offshore wealth anonymously at a flat rate of 2.5 per cent. "This meant we could also welcome funds being repatriated from Switzerland as well Germany and France in Milan and Bergamo," he said. Gottardo's Italian domestic business, which aims to break even in 2004, is part of a wider drive to tap Europe's onshore wealth. The bank also has an affiliate office in Paris, Groupe Oudart, and in Vienna, Gottardo Asset Management. But Italy is still the bank's strongest foreign market. Soncini said growth rates had been "phenomenal" in the first three months, but that this was exceptional, partly because of the tax amnesty and partly to meet initial demand. "Our name is well known and we have a good reputation as asset managers and private bankers. They see us as an Italian bank that is international with Swiss private banking culture. We also have local partners, shareholders—members of important families in Italian industry who are working with us," he said. Banca del Gottardo saw rapid growth during 1990s bull markets, doubling assets under management to SFr43.4bn in 2000 from SFr22.8bn in 1996. Profit figures also doubled and staff increased to the current headcount of 1,379, as the bank boosted its domestic business in Switzerland while expanding abroad. Despite last year's bear market, Gottardo increased new net inflows due to the bank's expansion drive in Zurich and Luxembourg, where it boosted operations, and by acquiring WestLB Suisse. The bank also acquired important assets from Swiss institutions thanks to its parent company, Swiss Life, which is very active in domestic asset management. At the heart of this expansion drive is a strategy to develop domestically in regions where it is established, has a reputation and is already strong. But diversification of products and services is also key. Gottardo handles a substantial number of affluent clients with between SFr500,000 to SFr2m, high net-worth above SFr 2m as well as ultras more than SFr 25m. Family office-type services are available to the ultra HNW group, including estate and inheritance planning as well as fiscal planning and real estate services. "High net-worth has always been our core business. Affluent is also very important when you have the right products and service you can tap very interesting markets," Soncini said. Gottardo has just launched a new capital-protected hedge fund product for affluent investors with more than SFr100,000. About 30 to 35 per cent of private banking clients' assets are managed on a discretionary basis across all segments, around 40 per cent have advisory mandates which means consultation with clients while the bank also offers "dynamic advisory mandates" which accounts for five per cent of clients who want to talk to their relationship managers frequently. The remaining are either self-directed client or external asset managers that represent a very important clientele for them. Gottardo is currently forging a new system to reduce commission-based fees, which are becoming virtually obsolete with technological advances and the internet, and shifting to more customer-oriented flat-rate fees, which are currently between one and 1.5 per cent. "Traditionally non-discretionary business was commission-based, but we are now introducing an advisory fee - so it is clear what the client receives and relationship managers are not tempted to boost the number of transactions to earn more money," said Soncini. "Another reason is that you have added value. A relationship manager will only advise you to make a transaction when he really thinks it is in your interests. But then, you must make sure performance is good. A typical private client doesn't mind paying for good service," he said. Another key tenet of the bank's strategy is open architecture, under which the bank offers clients third party products, usually funds, alongside in-house products. In addition, Gottardo offers products of Swiss Life. The bank tends to take a more defensive approach to investment. About five per cent of assets under management are in alternative investments, which will grow. The rest are split between stocks, including funds, and fixed income. Banca del Gottardo was unscathed by accusations Swiss banks hoarded Holocaust victims' dormant assets after World War Two but had to work hard to repair its image after Lugano construction company Mabetex, a client, came under investigation in 1998 for alleged involvement in a Kremlin corruption scandal. "The Mabetex affair has admittedly caused some difficulties regarding our bank's reputation. We have identified some errors that have been made in the past. We have tightened the selection criteria of our counterparts and clients applying very strict rules and standards when it comes to references and rigorous due diligence procedures," Soncini said. "The real lesson? First and foremost, the need for a continuous monitoring of the quality of employees internal and external."