Families like doing business with other families. But do they like banking with family-run banks? Maybe, but not always.
The family nexus with other families is well established in business. Great family dynasties like the Agnellis, the Wallenbergs, and more recently the Arnaults, owners of LVMH, have often bought businesses with a family link. They like them because of the cultural fit and their joint commitment to long-term commercial objectives. Further down the corporate scale, small and medium-sized family firms also like doing business with other family firms. Just like for their bigger counterparts, there is a cultural fit. And family offices and family businesses like doing business together for similar reasons.
So, doesn’t the same logic fit with family-run banks? Surely, family businesses would prefer to use the products and services of family-owned banks than non-family run ones. In many cases the answer is yes. Family-run banks like Rothschilds, Lombard Odier and C. Hoare & Co do a lot of business with family firms, for similar reasons as family businesses link up with each other.
“We do have many families in business banking here,” says Alexander Hoare, a partner at his family-owned bank C. Hoare & Co. “The feedback we get is that neither family businesses nor anyone else likes banking at the competition.” Being a family-run bank that has survived and flourished for more than 400 years probably helps in gaining these clients.
David de Rothschild, the chairman of Rothschild Continuation Holdings, has often said he and his bank likes doing businesses with other family firms. In fact, Rothschild & Co likes doing business with other family groups so much that they recently bought a French family-run bank called Martin Maurel.
Lombard Odier has been a strong supporter of the global membership group, the Family Business Network, for some time. The bank’s recently retired managing partner Thierry Lombard was for many years chairman of the Network. Germany’s family-owned Berenberg Bank has many relations with the country’s Mittelstand and family offices. And Austria’s family-owned Bankhaus Spangler also has many links to the country’s family firms.
For the most part, family-run banks have been around for a long-time. Indeed, all the above ones for more than 100 years. That longevity of service builds trust with customers. Also, all these banks and other family-run financial institutions benefitted from the post-financial crisis loss of confidence in many of the bigger non-family run financial institutions. Most family-run banks avoided the problems of their bigger, non-family run competitors. That was seen as virtuous by the wider public and consequently led to a growth in customers – many of them family businesses.
But there’s one issue for family-run banks that does pose a problem for them when it comes to dealing with family businesses and offices – and that is their size. Pretty much all family-run banks are either small, or medium-sized. The days of the family-run mega-banks are long since gone, with family-control of J.P. Morgan, Goldman Sachs and Barclays not much more than a footnote in their history.
And because of their size, family-run banks don’t have the balance sheets to provide the services demanded by bigger family-run groups. The big US-based investment banks and Swiss groups like UBS and Credit Suisse will still get the patronage of the big family businesses and offices – and many of the ones that will become big in the future.
Of course, most family-run banks aren’t going to get too concerned about losing business to their bigger counterparts. There’s plenty of business to go around for them to satisfy their needs.
Besides they can play the long game better than their bigger rivals – and wait for future financial crises to reconfirm the strength of their business models and maybe even take the bigger clients away from the mega banks in the future. That would be the ultimate accolade for their family business model.