Defenders of old-fashioned dealings

Dexia won’t be selling competitors’ products and refuses to choose between either manufacturing or distribution, writes Roxane McMeeken.

In stark contrast to the prevailing trend, Dexia, the Franco-Belgian financial services group, has no plans to operate the “open architecture” system, which has become high fashion among Europe’s banks and fund houses. Again, shooting down current perceived wisdoms, Marc Hoffman, chairman of Dexia’s executive board, believes he can ride two horses, by succeeding as both a top manufacturer and distributor of funds. Dexia, whose competencies include private banking, retail financial services, asset management, fund administration and public finance, is currently being streamlined, explains Mr Hoffman. At the same time, some new, more adventurous product strategies are being cooked up. The recipe will include a focus on customer relationship management and distribution alliances. But open architecture is definitely not on the menu. Mr Hoffmann dismisses the idea that a financial firm should choose between manufacturing and distributing competencies as “outdated”. Moreover, he is simply “not interested” in selling competitors’ products. “This stance is only made possible because we have an excellent manufacturing capability and offer a large selection of in-house funds with almost no gaps,” states Mr Hoffmann. If a client asks specifically for a non-Dexia fund, the firm will buy it, but that is as far as it goes. Financial all-rounder Mr Hoffmann, a financial all-rounder who has worked in roles ranging from capital markets at JP Morgan to marketing at AIG, staunchly defends this seemingly old-fashioned approach. “Giving clients best of breed is only part of the answer. You may have had the best e-commerce fund two years ago, but you still may have lost a lot of money. Nowadays, the key is advice. Performance is secondary.” Three of Dexia’s fixed income funds were recently downgraded by Moody’s. On the plus side, two newly launched Dexia products, the Bonds USD and Index Euro Bonds, have each scored Aaa ratings. A raft of new funds have been and will be launched this year, “particularly protected and wealth preservation funds”, Mr Hoffmann says. The latter “will very often be hedge funds not correlated to the equity markets”. Dexia’s array of funds will simultaneously have to be rationalised, he says. Dexia is still in the process of assimilating Cordius Asset Management, the investment arm of US-based Artesia Banking Corporation, which it acquired in February 2002. Between them, Dexia and Cordius have 400 funds spanning the full range of asset classes and investment styles. “We will be taking out 40 per cent of funds through merging them,” explains Mr Hoffmann. Dexia has also scaled down its private equity operations. It recently shut down the Belgium-based venture capital subsidiary Dexia Ventures. The company ran a portfolio of early stage high tech businesses, which Dexia decided was not profitable in the short or long term and “too risky for the Dexia Group’s profile”. But Dexia has not entirely ruled out venture capital activity and continues to engage in lower risk investments. With the product range in place, the focus will shift to private clients, Mr Hoffmann reveals. Online business cut out Late last year Dexia also sold off its web based broker business, aimed at Dutch clients, to Utrecht-based Rabobank. Launched in 1999, the service offered affluent investors the chance to manage their investments online. In a statement, Dexia deemed the online approach “no longer part of core activities”. The new tack will be to “up-sell retail clients into a private client style service”, says Mr Hoffmann. “We believe that this is where the most opportunities lie.” The threshold portfolio size at which Dexia will offer a client the chance to upgrade their service varies in different countries. In Belgium it is E500,000. The figure is lower in Luxembourg and higher in Switzerland. Mr Hoffmann explains: “We want to offer customers a one-on-one service. Central to this will be tailor-made advice on their portfolios. One of the most difficult things to do is assessing a client’s risk tolerance. We will spend a lot of time with people trying to assess this.” Thanks to its multi-national base, one of Dexia’s selling points will be the ability to service a client who moves between different countries, says Mr Hoffmann. The current funds distribution strategy will be maintained. In-house channels sell 70 per cent of Dexia’s products, the remainder are sold through third parties. Dexia’s key subsidiaries include Dexia Banque in Belgium (the country’s second largest bank), Dexia Banque Privet in France and UK private client specialist Ely Fund Managers. Mr Hoffmann says Dexia has “reasonably aggressive development plans” for expansion in the Netherlands, France Belgium and elsewhere in Europe. Dexia is struggling with its reputation in the Netherlands, however, because an investor group is suing it over a share-leasing programme. The investors, which could claim as much as E4.5bn, allege that the shares sold in Dexia through this particular programme were sold with insufficient warning of the risks involved. Dexia denies the accusation. The firm is looking to form partnerships with key retail distributors, such as the recent deal signed with Spain’s Banca Populaire. Today the group has E60bn under management. Mr Hoffmann is confident of increasing this by 10-15 per cent annually. It is a more sober goal than that announced by Dexia’s head of asset management Hugo Lasat last year, who hoped for a 70 per cent increase by the end of 2006. But in the present market conditions Mr Hoffmann’s target is nonetheless ambitious. Dexia was created following the 1996 merger of local public finance companies Crédit Local de France and Crédit Communal de Belgique. When these two joined forces with Banque Internationale ŕ Luxembourg (BIL) in 1999 to form Dexia, it was one of the first cross-border mergers in European banking. As things stand, Dexia has operations in 19 countries, with its strongest position in the private banking and fund administration industries in Luxembourg. Mr Hoffmann’s plan is to strengthen Dexia’s presence in other European countries by maintaining multi-channel distribution and targeting high net worth clients with a proprietary product range.

Dexia’S One-man mean machine A Luxembourger with an unexpected interest in sailing, Marc Hoffmann is not shy of accepting a challenge. As a member of Dexia’s executive committee, he is in charge of developing investment management services at the Dexia Group. This is no mean feat, as it comprises private banking, asset management, investment fund administration and equity-related activities. On top of this, Mr Hoffmann is also managing director and chairman of the executive board of Dexia Banque Internationale ŕ Luxembourg, which provides retail banking, private banking, financial banking, asset management and fund administration services. He was born in 1958, is married, and has two children. His career highlights include postgraduate degrees from the Sorbonne and Harvard Business School, and senior posts at JP Morgan Securities, AIG Financial Products UK, and Dexia BIL.

Marc Hoffmann: 'Nowadays, the key is advice. Performance is secondary'