Asia’s booming economies are churning out new millionaires at a rapid rate and wealth managers have been vying for a slice of this growing pie. But in the wake of the global financial crisis, some private banks are now bowing out of the region due to mounting costs and stricter regulation.
Royal Bank of Scotland is the latest to succumb. The UK-based bank announced in early August that it wanted to sell Coutts International, the overseas arm of the private bank that boasts the British royal family and David Beckham among its clients — a move that could raise as much as $1 billion, according to market sources.
The risks associated with owning an international private bank have grown too onerous for a lender that is 81%-owned by British taxpayers. Also, the rising cost of compliance and money-laundering checks required by regulators has made it harder for smaller players to compete with the bigger beasts in the sector, including Switzerland’s UBS and Credit Suisse, say investment bankers and analysts.
“If you don’t have the critical mass today, it’ll be very challenging for the organisation because the cost of doing business, especially in Asia, is very high,” Jean-Claude Humair, regional market manager for Hong Kong at UBS told FinanceAsia. “For us, wealth management is not a hobby or a side business.”
UBS bolstered its Asia-Pacific wealth management staff by 10% this year to 1,150 and assets under management rose to $245 billion at the end of last year, up from $177 billion in 2011.
In April, DBS offered to buy Societe Generale’s private banking operations in Singapore and Hong Kong, as well as other parts of its trust business in Asia. But such mergers are never easy.
“Private banking is a business of trust and relationships,” Credit Suisse’s head of private banking Francesco de Ferrari told FinanceAsia, adding that the Swiss bank is still open to acquisitions — just as long as they make sense.
“It is very hard to sell trust, especially in a market like Asia, where there’s a lot of talent scarcity and the business tends to be volatile,” he said.
Follow the wallet
Rising costs are not the only issues that private bankers have to tackle, but tracking down this elite group of people and winning their business in Asia is arguably more difficult than it is elsewhere. That is because billionaires from the region tend to be a relatively new generation of entrepreneurs who have made their fortunes during the past 20 years, rather than inherited it thorough generations.
Financial institutions that can marry both their private banking and investment banking arms, while at the same time offering loans, are the ones that are most likely to succeed in Asia, Credit Suisse’s de Ferrari said. He added that the Swiss bank extended SFr1.1 billion ($1.2 billion) of net new loans to ultra-high net worth individuals in Asia in the first half of 2014, which is 40% of the total globally.
“While everyone says that Asia is sexy, big and growing fast, in reality it’s a lot more challenging for those that are solely doing private banking, or [trying to shift] from retail to private banking,” said de Ferrari.
As wealth shifts to the younger generation private banks are favouring a product mix that is less reliant on transactional capital market products and more centred around longer-term, recurring-fee products such as funds, discretionary mandates and wealth-protection offerings.
But private bankers highlight the importance of building a relationship with these potential elites from the start and riding through the lifecycles with them as they grow their businesses.
“Being able to partner with them at the early stage and help them grow their businesses is crucial as you can really build consolidated relationships that last generations,” de Ferrari said.