Chairman’s message Word has it that bankers are to blame for everything. For the economic slowdown in developed countries – as if the spectacular growth in emerging countries, with their billions in terms of populations, trade surpluses and sovereign wealth, hadn’t in 30 years transformed an international division of labor 200 years in the making. For the poverty that is spreading in wealthy countries – as if workers in new economies hadn’t established an inverse socialist order in which workers of the world, far from uniting, wage war with each other. For government bankruptcies – as if spendthrift Westerners hadn’t willingly sunk into the deficits of their social safety nets. For the greed of financial markets demanding that debtors start exercising self-control again – as if the money lent by banks, that of savers, doesn’t need to be protected at all costs. For the implosion of complex products deemed speculative – as if it were possible to turn easy-access, risk-free savings into long-term, risk-infused financing without alchemy, and as if the mounting demands of regulators didn’t force intermediaries to find creative solutions to finance the projects of companies and private individuals. Of course the world banking system – its American branch in particular – has gone off course. But the subprime crisis happened because everyone in the public and private sectors in the U.S. let it happen. Blaming banks alone is unfair and a risky gamble for the future when the comfortable world order of the last 25 years is coming painfully apart, and some build and save what others consume and borrow. Likewise, it would also be ridiculous to put all banks in the same basket. Many major banks have been hard hit throughout this crisis; their management laid off and their shareholders crippled. Depositors, however, have survived unscathed thanks to the collective protection mechanisms put in place by governments and central banks. A bank such as ours has weathered the storm reasonably well, despite undermined results for shareholders and clients alike. What makes us different? For one, our efficient structure combined with our specialization in asset management services – which makes us more manageable than bigger, diversified groups. Concentrating on thirdparty asset management prevents the conflicts of interests frequently seen in many groups between the profit goals of investment banking or proprietary activities and third-party results. Our investment banking activities, on the contrary, are closely tied to our model of wealth management. Moreover, we seek a robust balance sheet before all else. Hidden dangers lie everywhere and avoiding all the side effects of external shake-ups is impossible, but we firmly refuse proprietary and high-risk trading. Last but certainly not least, through our work we dedicate not only our capital but also our family’s name, which has been respected in banking for over 250 years. This drives home the long-term focus that guides our Group’s strategy, our commitment to team loyalty and our relationships with our clients. I believe that staff stability cultivates respect for the client. Employees at some big banks, tied to stopand-go policies, are pushed to sell ‘one-offs’ that are profitable to the banker and tempting for the client – who won’t deal with the same person when the damage is done. Over ten years ago, our group implemented the measures issued by the European Union today to develop stock-option programs to encourage bank employees to take part in producing sustainable results. In 1999, for example, all employees at the French branch of our group received stock options. Low employee turnover has meant that our clients face crises with the same advisors, who have done their utmost to survive the storm with them. Without a doubt, I believe the biggest lesson this terrible crisis has taught us is that short-term gambles are extremely dangerous, not only for companies and States, but for the entire world. The menu du jour is to make the wealthy pay, but encouraging them to make long-term investments would be a better solution than seeing them lose it all. And what better way to promote this virtuous behavior than family capitalism? Family capitalism can only survive the centuries by accepting to change along with the outside world. And it is cautious and gradual change that I decided to implement within our banks – with the unmatched, active support of my wife. I felt it was necessary for the different entities 9
within our group, which have developed, gone international and diversified their activities impressively in the last 15 years, to continue to grow in a more coordinated manner and with greater shareholder oversight. These changes aim to meet even higher standards for our services and to make our activities even more secure. This new approach, which highlights group structures, must in no way overshadow what defines our brands and the force behind family capitalism – responsiveness, proactive thinking and proximity. As the saying goes, we must change to stay the same. Baron Benjamin de Rothschild 10 <strong>2011</strong> ANNUAL REPORT - BANQUE PRIVÉE EDMOND DE ROTHSCHILD SA