(The following statement was released by the rating agency)
Feb 6 - Fitch Ratings says the planned changes of Pictet & Cie
('AA-'/Stable/'aa-') and Lombard Odier & Cie's ('AA-'/Stable/'aa-') legal
structures from unlimited partnerships to limited companies announced on 5
February 2013 reflect among other things the heightened awareness of litigation
"tail risks" that Swiss private banks are increasingly exposed to.
Fitch says Pictet's and Lombard Odier's ratings do not directly benefit from
their current legal structure and hence the proposed changes do not have a
direct impact on their ratings. While Fitch's ratings factor in institutional or
sovereign support, potential support from private individuals such as unlimited
partners is excluded from Fitch's analysis.
The proposed changes to the legal form will streamline the banks' legal
organisation, improve transparency and bring it more in line with international
best practice. However, the changes will also limit the partners' exposure to
potential losses at the banks. Under the banks' current legal form, each partner
holds joint and several unlimited liability.
Fitch has noted before that for Swiss banks, risks from increasing litigation
such as inquiries concerning US off-shore clients have increased in recent
years. While the proposed changes would to some extent protect the partners as
private individuals, the exposure of the banks as legal entities to any
litigation risk would not change as a result of the revised legal structure.
Fitch's base case, which is also reflected in the two banks' high ratings, is
that risks of sizeable litigation costs that could meaningfully damage the
banks' capitalisation are currently modest. Should Fitch's assessment of actual
risk exposure to litigation change, then this could be negative for Pictet's and
Lombard Odier's ratings.
Pictet and Lombard Odier, the two largest Geneva-based private banks, announced
on 5 February 2013 that they intend to change their legal structure to limited
corporate partnerships (societe en commandite par actions de droit suisse or
SCA) from their current unlimited partnership structure by 1 January 2014. Under
the revised structure, the SCA, under the consolidated supervision of the Swiss
regulator FINMA, will be the holding company for the Swiss bank (which will take
the legal form of a societe anonyme or plc) and other domestic and foreign
subsidiaries which are currently already run as limited liability entities. Both
banks would start reporting semi-annual financial results at consolidated level
The two banks expect the new legal structure to be better understood
internationally, improve risk governance (through external risk control at SCA
and SA level) and transparency while maintaining the banks' independence and
alignment of interests between partners, clients and staff.
The two banks' ratings are underpinned by their low overall risk appetite and
exposure, strong capitalisation and solid liquidity. Fitch expects that the
revised legal form will not lead to a change in risk appetite, and the banks'
ratings are sensitive to this assumption. Similarly, any leverage at SCA level
could also be negative for the banks' ratings.
(Caryn Trokie, New York Ratings Unit)