ABN Amro filled with a new resolve

Not only does Didier Duret, long-serving chief investment officer at ABN Amro Private Banking feel confident making bold asset allocation calls, but he is also a strong believer in building the Dutch bank’s wealth business to match its rivals.

Recent months have seen the often contrarian Frenchman call the eurozone’s weakness more a blessing than a threat, instruct clients to scale down allocations to US stocks just as competitors are ramping theirs up, and recommend increased positions in European shares in contrast to peer-group banks.

The instability in Greece is not currently extreme enough to herald a “potential Lehman moment,” believes Mr Duret, but he does see opportunities arising from the uncertainty.

“A lower euro can open the way for a reversal of sentiment in European equities,” he says.

His forthright market predictions mirror a new resolve rumbling through the ranks of ABN Amro. This follows the bank’s re-emergence as a Europe-wide wealth management player, after a prolonged purchase and break-up process instigated by a consortium comprising RBS, Santander and Fortis, which eventually contributed to the latter’s collapse.

In order to diversify portfolios, Mr Duret, responsible for advising 100,000 private clients holding assets worth €147bn, is particularly fond of using thematic investment tools. One of the themes he is keen to exploit is energy, highlighting the difference between historically low gas and high oil prices and playing them with a “competitive hedge”. Many products such as ethanol and plastics can also be derived from gas with efficient processes, he says.

The cheap gas can be used generally to rebuild companies and more specifically in specialist areas such as agribusiness, as a source of nitrogen, comments Mr Duret. “This is a very interesting area, not just due to the price gap, but also regarding the products of the chemical industry. It is a road less travelled to an area not well populated.”

Companies which benefit from falling gas prices – as new extraction methods begin to increase supply – are likely to include Saipem, Woodside Petroleum, General Electric, Alstom, International Paper and BASF. Indeed industrials in general have become one of the bank’s favoured equity sectors, as European equity allocations are boosted to substitute declining weights allocated to the US.

From his contact with private clients, Mr Duret believes investor confidence is gradually returning and the upside for equities is yet to be exhausted. But his predictions are accompanied by a hint of Gallic sang froid. “For equities to move higher, they need to demonstrate the inner driving forces of earnings generation and sales growth,” he warns.

Another pocket of diversified assets Mr Duret is developing for private banking clients is that of Asian corporate bonds, away from the mainstream fixed income market, which currently lacks attraction. These instruments are identified as offering value relative to developed market peers and the bank’s Hong Kong-based head of emerging market bonds has identified almost 40 credits across industry sectors. Asian corporate bonds are expected to attract large flows due to demand for savings instruments in Asia and due to the quest for diversification by foreign investors.

“This trend won’t simply stop if there is a soft landing in China during the next six months, and the same goes for the oil and gas industry,” says Mr Duret, adding that for all of his favoured themes, to be rolled out gradually, “there will be new chapters in each quarter.”

The latest chapter in the US equities story is a downgrade of US equities from overweight to neutral, just as most other private banks are making the opposite call.

“The underlying rationale for the outperformance of US equities versus European equities is well understood, but the trade is probably stretched,” he says, adding that a higher dollar against the euro could be the “tipping point” in coming months.

“We are now on the bumpy road from the new normal to the old normal,” believes Mr Duret, with global imbalances correcting and the US trade deficit with China narrowing.

“The US was the consumer of last resort and China was the lender, which paved the way for the crisis. The future will be much healthier and that’s a reason to be optimistic.”

With his passion for classical music, Mr Duret often compares his role as chief investment officer to an orchestra director, co-ordinating a variety of different musicians and private bankers, used to playing and interpreting the music in their own way.

“In my team it’s a matter of focusing on individual skills,” he says. “Each person contributes their well-researched findings, allowing us to create a clear picture of the financial markets.”

Having previously served at Swiss bank UBS, Mr Duret believes the ideal private bank can offer a mixture between the entrepreneurship of some of the trailblazing, more nimble boutiques and the “marching armies” fed and watered by some of the ‘one-bank’ giants.

Strong internal investment franchises – in addition to the ability to select best-of-breed externally managed funds – are vital to the success of private banking businesses, he believes.

Distinct asset management units, such as Neuflize Investissements and Neuflize Private Assets, together running €25bn, will increasingly play a key role in the future of private banking at ABN Amro, he suggests. The situation can be compared to that in smaller Swiss banks such as Pictet, which he believes is developing its highly credible asset management capacity as much for an internal private client base as for external consumption.

Under previous regimes, Neuflize was just a “sleeping” beauty, with an excellent reputation yet little market penetration. The bank was formed in 1667 with an industrial customer base. “Now we see new generations of dynamic entrepreneurs coming out of these old families,” says Mr Duret.

Another key driver in asset growth is likely to be ECT, the bank’s energy commodities and transportation business, which previously went to the ill-fated Fortis after the break-up, but is now back with ABN. “There is a lot of synergy here, as private banking clients want expertise in these areas,” says Mr Duret, pointing out rivals such as BNP Paribas and SocGen pulled back from this area of financing, due to capital limitations.

CV

Didier Duret

Role: CIO ABN Amro Private Banking Global Research & Strategy since 2005

Education: Masters in Economics from Grenoble University; DEA in finance from the École Supérieure des Affaires; postgraduate degree in international finance from the École des Hautes Etudes Commerciales in Montreal

History with ABN Amro: Joined in 1998, leading the Discretionary Portfolio Management Department, subsequently becoming Head of Financial Products and European Head of Product Development, before being appointed CIO

Previous Experience: Held senior positions in investment management at UBS and Paribas, both in Switzerland. Prior to that, worked as economist and strategist for the Investment Committee of Banque Pasche-CIC Group; Economic Adviser for Banque Paribas (Suisse) and Consultant at the International Futures and Commodities Institute for the launch of the Soffex financial market in Switzerland

Corporate strategy

ABN Amro Private Banking has been busy defining a unique, onshore strategy for European growth.

Management sees the unfashionable asset homes of Germany, France and the Netherlands as not only offering the potential to grow assets at a speedy rate, but also offering potential to book the type of gains from onshore private banking which the major Swiss players have long been promising from changed business models, apparently being adjusted to move away from secrecy and tax-lead business.

“Many Swiss banks are fighting like mad to get access to the type of markets which we have,” says Jeroen Rijpkema, CEO of ABN Amro Private Banking International in an apparent reference to the likes of UBS and Credit Suisse.

More than €70bn of the assets are sourced from the Netherlands, where ABN Amro Mees Pierson is market leader. There are also strong growth ambitions in Asia, where ABN Amro plans to double the number of private bankers to 200 across the region.

Individual wealth management units gaining increasing prominence within the bank include Neuflize OBC in France and Frankfurt-headquartered Bethmann Bank. “We may not be as big as Deutsche or Commerzbank, but we are for sure a significant and fast-growing player in German private banking,” says Mr Rijpkema, pointing also to the aquisition of LGT Bank Deutschland, in addition to organic browth plans.

Respected local brands will definitely be preserved for the medium term, at least until ABN Amro develops a stronger resonance in the private banking field.

Didier Duret, ABN Amro