After the Pierin Vincenz scandals, the 219 Raiffeisen banks kept the ship on course and fought for better management of the St. Gallen headquarters. But power at Raiffeisen will not fully return to the base. And that’s right.
Aiming high with Raiffeisen: The banking group must maintain the balance of power between its base and its headquarters in St. Gallen.
The Raiffeisen Group is going through a strange time: profitable and fraught with problems at the same time. Her top staff makes headlines with scandals and affairs, but her customers hardly care. Year after year, the last 219 Swiss Raiffeisen banks increase the funds under management and the mortgage loans granted. Every sixth mortgage in the country is processed through the cooperative banks. Customers trust the Raiffeisen brand as if nothing had happened.
A long shadow
A lot has happened in St. Gallen: The long-time bank boss Pierin Vincenz will, if the pandemic allows, stand with six co-defendants before the Zurich district court in two weeks. The public prosecutor’s office accuses him of fraud and unfaithful business management, among other things to the detriment of his former employer, Raiffeisen. It is the presumption of innocence.
In 2018, Raiffeisen only sided with the prosecutors after a long period of hesitation. She is one of the losers in this process, no matter how it turns out, because it will once again bring to light all the governance sins of the previous leadership: the excess expenses and the power of Vincenz on the one hand, an inactive and overwhelmed board of directors on the other Page.
The sting hurts all the more since Raiffeisen Switzerland, after three years of rebuilding, caused bad press again in 2021. Guy Lachappelle resigned abruptly after three years as Chairman of the Board of Directors because of a private affair that got completely out of hand. Ironically, Lachappelle, the personified clean-up of contaminated sites. Who had recently taken over the chairmanship of an association that advocates good governance in cooperatives. There were no legally relevant allegations against Lachappelle, but the damage to the reputation of the bank and the president was already done.
This was followed by more sudden departures from the management, which raised the question of whether there is still a problematic management culture in St. Gallen. Whereby: The experiences of the Vincenz era could have meant that the Raiffeisen top took action particularly quickly when further governance problems loomed. To a certain extent, that remains a matter of interpretation.
When Raiffeisen appointed Thomas Müller to succeed Lachappelle in November, this was again sharply criticized from within the bank: Müller would only cause the banking group more problems because of his previous position as CFO at Bank Sarasin.
The latter built and marketed previously highly problematic so-called Cum-Ex products; one had the German state reimburse taxes that one had never paid. Legal proceedings are now underway against the Cum-Ex masterminds. Müller, who has been part of the Raiffeisen Switzerland Board of Directors since 2018, is not one of the accused as of today. The delegates elected him as the new Chairman of the Board of Directors with 76 percent of the votes.
A finma to bind them forever
But even supporters of Müller still fear that “St. Gallen »too much power to unite. This critical attitude is not a bad thing. Ultimately, Raiffeisen Switzerland is a subsidiary of the individual, independent Raiffeisen banks. A healthy distrust on the part of the owners of high-flying strategies, hollow phrases and overpaid top managers would have done many Zurich banks over the past twenty years.
In addition, the Vincenz affair had already severely damaged the trust between the banks and their headquarters. It was only thanks to pressure from the grassroots that the Board of Directors of Raiffeisen Switzerland renewed itself and the group tackled serious governance reforms from 2018. It gave itself a new owner strategy, more democratic electoral rules for the assembly of delegates as well as new institutions that build a bridge between base and headquarters.
This also gives up further power by releasing the subordinate city branches in Zurich or Bern into independence. All of these steps made sense in order to restore the balance in the Raiffeisen system. But the members of the cooperative now have to be realistic. You cannot pull power out of St. Gallen. Raiffeisen can only have a future in a banking landscape that is radically changing as an association with a strong headquarters.
Firstly, for regulatory reasons: the authorities consider the Raiffeisen Group to be one of the systemically important banks. It therefore has to meet stricter requirements than smaller banks. The Financial Market Authority (Finma) does not monitor the cooperative banks between Diepoldsau and Geneva individually, but via the St. Gallen headquarters. That’s more efficient. In return, it must ensure that the banks adhere to the rules and are adequately capitalized. The group has to rescue the individual banks if they get into trouble.
The head office is therefore not only a watchdog on behalf of Finma, but also an arbitrator who has to ensure fairness within the Raiffeisen association. Without this control, the cooperative solidarity would have a hard time. But this role automatically results in a position of power.
Together you are more digital
Second, the banking business is increasingly migrating to apps and online platforms. In the countryside and in the smaller agglomerations, where Raiffeisen is particularly strong, it took a little longer. But in small, urbanized Switzerland, new technologies are spreading quickly from the metropolis to the villages.
The new competitors cut off a piece of the cake that the Raiffeiselers had to share mainly with the cantonal and big banks. Neobanks offer free credit cards and accounts that can be conveniently managed via smartphone, or they exchange currencies at an unbeatable price.
Young customers are also bombarded with advertising for third-pillar apps. The Raiffeisen counter offer is catching up from a technical point of view, but is not yet keeping up in terms of price. Pension funds and insurers are shaking up the mortgage market, and open platforms are intensifying competition. And despite all efforts to diversify, Raiffeisen remains dependent on the mortgage business to this day.
The group needs to find the right strategic answers to these challenges. And it is up to Raiffeisen Switzerland to initiate, orchestrate and, for the most part, implement the discussion. The regional associations must be brought on board before any groundbreaking decisions are made. But it wouldn’t do for the Raiffeisen banks in Solothurn, for example, to rush to rich private customers, while the Valais are reinventing themselves as a pure smartphone bank for young people.
Based on this group strategy, the Raiffeisen Group must also continue to invest in its technology. For this purpose, the banks must also pool their competencies in St. Gallen. Because not every IT procurement can be carried out democratically through consultation.
Raiffeisen has already invested a lot in IT in recent years. And in the meantime, despite major mishaps during the construction of the core banking system launched in 2019, it has improved quite a bit. For example, Raiffeisen customers have recently been able to access the bank’s pillar 3a investment products directly via an interface in their e-banking. In the past, there was only a detour, which is why many people just left it. But there is still a lot to be done.
Exuberance would be out of place
Thirdly, the Raiffeisen base must always critically question its own role in the emergence of the latest governance crisis. Like the Raiffeisen Switzerland board of directors, it was not an effective corrective to the Vincenz system; over the years, the regional associations lived well and happily in it.
The jovial Bündner was a welcome guest in the country’s multi-purpose halls as long as business was running. He eventually formed the third largest banking group in Switzerland from the land banks, and brought their success and recognition. In the mortgage market, it pushed its opponents against the wall and ventured into new areas of business. They showed it to the fine gentlemen in Zurich – and yet remained blind to the problems in their own house.
With the Vincenz Trial, a difficult chapter for the Raiffeisen Group is coming to an end. With Thomas Müller as President and Heinz Huber as CEO, Raiffeisen Switzerland has two executives who are considered to be level-headed and able to work in a team, but not as alpha animals.
Nevertheless, you have to hold the reins in your hand and ensure that the group as a whole remains capable of acting and does not wear itself out in fruitless Jekami debates. Because if Raiffeisen stands in its own way instead of clearing it, the competition is quickly on the spot.