JEDDAH: Lombard Odier is the oldest firm of private bankers in Geneva and one of the largest in Switzerland and Europe. Established in 1796, the unlimited liability firm of eight managing partners attaches great importance to its independence, which it regards as the key to its freedom of judgment.

“We have been through an estimated forty crises in the 213 years of our existence,” said Pasha Bakhtiar, the managing director based in Dubai responsible for the affairs of clients in the Gulf region. “What is important is liquidity — you need it to ride these things out.”

He said that the global financial storm affected everyone in the industry to some extent. “We all sail on the same sea and we had to navigate cautiously. Our underlying philosophy and the conservative and family owned business — the secure message and image we convey has probably served us quite well.”

The banking industry has been very severely damaged from the removal to a great extent of the element of trust necessary for it to operate. Bakhatiar thought this was something the banks had to strive to overcome and admitted that this was definitely one of the most difficult times to be in this industry. It has caused a change in the perceived image of banking and it is up to bankers to go out there and rebuild the image. “But people and the economy at large need financial institutions in order to function efficiently. It is also up to us to question ourselves and ask if we should act differently, be more transparent or do things in a different manner. This is part of the evolution of the role of banking in general,” he observed.

Bakhtiar thought that the primary lesson taught to the industry by the meltdown to the use of leverage opining that the use of excessive leverage to achieve above average returns would in the long-term just not function. Access to cheap capital was one thing; abusing that access led to relatively dramatic consequences. He noted that it was very “easy money” when market returns were buoyant and everyone was happy - but to what extent that leverage could inflate those prices meant that bankers were working with far more risk than there was money out there.

“That is why our bank has become even more cautious in our lending practices. We believe that if you have ten bucks you should invest ten bucks and not a hundred bucks. It’s as simple as that.”

The Geneva “banquiers privee” are low profile and cautious individuals because as in their case, thought Bakhtiar, it is their money and their firm. “With a lot of other organizations it is simply not their money but very often shareholders money. There are so many profit and loss centers in the bank that no one really feels an underlying sense off responsibility all the way up to the CEO.”

Bakhtiar said the Lombard Odier had several layers of backing consisting of the bank’s capital and then, “Since we are an unlimited liability firm the capital and assets of each of the partners come as an additional layer of security.” This is something that many of the traditional banks cannot offer.

“It concentrates the partners minds and keeps them fresh. That is a very comforting fact in these times,” he observed.

Bakhtiar thought that the underlying mentality for investment had changed recently as risk appetites shifted dramatically toward the conservative. The propensity of an investor to sustain two consecutive years of losses was low. “Someone who was negatively impacted by market forces in 2008 is much more liable to shift to a conservative approach in 2009,” he said.

Lombard Odier erred on the side of caution as early as 2007 but many of their clients did not share those views. In the Gulf there were clients who adopted a riskier approach and resisted the view the view that a crisis was brewing when elsewhere things were booming at the stratospheric level.

People were making unreal returns in the domestic equity and real estate markets and there was little concern that things were about to reverse so dramatically.

“It was hard to push through that message when at the same time everyone else was producing double-digit returns. If it looks to good to be true, it probably is - but in this case it lasted a long, long time before the truth came out.”