Societe Generale is reportedly in talks to sell its Asian private banking business, becoming the latest player to quit the industry amid a challenging market environment.
The business could be valued at more than $600 million, according to sources quoted by Reuters. It is no surprise that SocGen is considering selling the Singapore-based division, given its small size relative to the dominant regional players such as UBS, HSBC and Citi.
“Internally, we’ve been hearing rumours about a sale for the past three or four years,” said one source at Societe Generale.
Private banks in Asia are facing a difficult reality: the region’s rich continue to get richer, but intense competition for their business has squeezed profit margins so much that smaller players are being forced to consider their future.
“I can see the rationale of why Societe Generale would try to do it in Asia; it’s not an easy situation,” said Ismael Pili, head of Asian financial institutions research at Macquarie. “In Hong Kong and Singapore, there are close to 5,000 private bankers but, based on wealth growth of 6% to 7%, you’ll probably need more than 6,000 in five years.”
The shortage of qualified private bankers to cope with this growth is driving up costs, particularly as new entrants have sought to expand their business by poaching staff. Cost-to-income ratios have gone from about 50% to more than 80% during the past few years, and this pressure on profits has encouraged some banks to quit the industry.
Earlier this year, Morgan Stanley sold its Indian wealth management business to Standard Chartered and Bank of America Merrill Lynch sold its wealth management division outside the US to Julius Baer.
Standard Chartered is again an obvious contender for the SocGen business, as is DBS, which has made clear its ambition to compete with the region’s biggest private banks.
See this month’s issue of FinanceAsia magazine to read more about wealth managers in Singapore.
