How has the private banking industry changed since the financial crisis?
Regulatory changes have forced banks to maintain a higher capital base to comply with Basle III and other requirements. For UBS this is not an issue as we have always maintained a high capital base and raised capital early. As of the end of September 2011, our Basel II Tier-1 capital ratio stands at 18.4%, and it is among the highest in the industry. Supervisory oversight is also increasing. There is now more consciousness among clients of how banks will look in two to three years.
How have the changes affected what private banking clients seek from their banker?
This may sound simplistic but clients primarily want good advice. This has not changed significantly. Clients nowadays are overwhelmed with information -- research reports, for example -- and they want someone knowledgeable and rational to advise them on how to manage their wealth.
What do clients value in a private bank?
Basic things. Convenience. One-stop shop. Clients want to know whether the platform meets their needs so they focus on the width and breadth of the platform. Is the private bank locally or internationally organised. Clients want the reassurance that the firm is expanding and investing across areas and not just in investments -- increasingly investment products are only a commodity which can be sourced from solution-providers.
What specific things are clients in Asia seeking?
Clients in Asia are also thinking about their companies and families. They may want their private bank to advise them on their business-related needs as well as wealth planning and succession planning. Ultra-high-net-worth (UHNW) clients are increasingly thinking about setting up family offices and institutionalising their philanthropic activities. Not only the UHNW, but the HNW also want advice on philanthropy as well.
Which countries in Asia are showing the highest growth in new wealth creation?
I'm happy and proud to be working in a region which on an overall basis continues to grow. China is clearly one of the highest-growth markets in Asia with a lot of wealth creation by private entrepreneurs. The wealth is spread out which can be a challenge -- we cover China through a combination of branches, representative offices and joint ventures. Another market which is very important for us is Japan. We are investing across the region. There are very few countries today where a private bank can go in and make a quick buck. Growth plans have to be backed by a solid investment plan and commitment.
Are you still hiring?
All private banks operating in the region would acknowledge that talent recruitment and development are difficult. At UBS we have built up a reserve of capacity by hiring continuously, whether markets are up or down. Our wealth management business did not stop hiring even in 2008. This positions us differently from firms which do not have capacity.
Is your growth in assets under management from new client wins or winning a larger share of the wallet of your existing clients?
These last two years have been balanced between the two. Between 2005 and 2007 our growth was mostly driven by capturing new clients. But now clients are consolidating the number of private banks they use. Before 2008, clients found it difficult to compare the offerings of different private banks. But that has changed and continues to change. In Asia, operating costs, inflation and employee costs (due to a limited talent pool) are all high. Competition is driving down margins and smaller players are finding it difficult to survive.
How are clients thinking about what is happening in the US and eurozone?
Even clients with the hardest hearts are affected but the impact varies. Some clients are becoming more conservative and we are advising clients to be more cautious. However, some clients have a higher risk appetite so they see the current time as an opportunity.
Do you expect further consolidation in the private banking industry?
We estimate that across wealth managers there are around 4,000 client-facing private bankers in the Asia-Pacific region. Based on what we heard in the market earlier this year, we reckon there will be another 1,500 to 2,000 added to the pool by 2015. Some firms have built up a high-cost base -- partly by building high-cost teams -- and are currently facing a squeeze on profitability. Also, while costs have increased revenues have not shown similar growth so far this year and some private banks may not have factored this in when they announced their plans earlier. Therefore we expect to see some private banks announcing a change in their Asia plans as early as within the next six months.