Julius Baer Holding AG's reputation as a stable and constant private bank is one of its most prized assets and protecting it is a top priority, its head of risk said.
Bernhard Hodler, the Swiss bank's chief risk officer, said he worries about possible damage to the Swiss bank's reputation far more than markets, credit or operational risks.
"Reputational risk is the largest risk before, during and after the financial crisis — greater than the combination of most other risks," Hodler said.
The damage to a bank's business once its image has been tarnished was made evident through the travails of Julius Baer's bigger rival UBS AG. UBS first made negative headlines by losing billions of dollars on investments related to the troubled U.S. market for home loans to clients with a bad credit history. Just when UBS started to emerge from this crisis, it was drawn into a protracted dispute with U.S. tax authorities for helping clients avoid paying taxes.
News reports on these events resulted in a client exodus that is continuing even though the Swiss government stepped in last year to boost UBS' capital and clients no longer worried that UBS might fail.
Though its reputation has not been tarnished, Julius Baer has generated far more headlines than its competitors since 2005, when it transformed from a staid, slow-growing family firm into an aggressive private bank in hiring and winning clients and assets.
Integrating a 2005 acquisition from UBS aside, Julius Baer has been kept busy with unexpected management changes such as the suicide in December of private banking head Alex Widmer.
Hodler said Julius Baer's main defense against damage to its reputation is a conservative strategy. It refuses certain clients, business activities or products.
That generally paid off handsomely during the financial crisis for focused players such as Baer, which does not operate an investment bank and does little trading and lending. A similarly positioned rival, the privately held Rothschild Bank, posted only a mild fall in profit for the year that ended March 31, saying clients had sought a safe harbor in its conservative risk-taking.
Hodler said, "The conservatism in how we operate has been in our DNA for a long time and has been pursued consistently."