Falling revenues and pending regulation in investment banking, coupled with increased capital requirements, have made private banking an attractive sector to be in for financial institutions.
Global reach has always been the defining measure of success. The largest players in the industry are from Europe and the US; as emerging markets boomed, they spent five years expanding into Asia and Latin America to ensure they can claim to be truly global.
Yet during the past 12 months, the economic landscape has shifted. Emerging markets have shown signs of a slowdown. The eurozone crisis has shaken up the perceived stability of the European banks and caused clients to rethink their partners. And the US, after three years of downturn, is now showing signs of a recovery – one that cannot be ignored.
It is a huge opportunity for those private banks that want to be truly global and not just domestic players with ambitions in emerging markets. Those in the US are in a position to win market share in Europe as clients diversify their partnerships. Simultaneously, European players must have a strategy for North America, now that the US shows signs of recovery and Europe struggles.
Global diversification protects against the inclement weather of economic dislocation in regions around the world; it’s not just about being where wealth is growing most. To be big in private banking, you need to be big in the US, Europe and emerging markets – being in two is no longer enough.
A glance at the top-ranking private banks in Euromoney’s 2012 survey highlights this trend. Santander, with its European, Latin American and US presence, jumps from 14th to eighth position, for example. The top-10 players have room to grow in certain regions, but they have a solid foundation of being present in all markets.
The Swiss banks, with a longer history of investing in global growth, still top the rankings. Credit Suisse held on to its position as best-ranking global private bank, while rival UBS Wealth Management ranks second.
The allegations of rogue trading at UBS last year seem to have done little to dampen its standing. The bank replaces both BNP Paribas as second in western Europe this year and Citi in second place in Asia, and has moved from fourth place to second in central and eastern Europe.
UBS’s biggest challenge will be repairing its damaged reputation in the US. As one head of a US private bank says: "Rogue trading matters little to private clients, but tax evasion is a very big deal." It is an area all the Swiss banks will need to stay on top of if they want to capture the US market.
Credit Suisse and Julius Baer have also come to public attention over investigations into helping US clients evade taxes. Julius Baer dropped out of the top-10 global private bank rankings this year to 13th place.
Competing with the US global private banks will be paramount for the Swiss and European players on their home turf. JPMorgan, in particular, has made inroads in Europe. This year, it ranks sixth in western Europe – up from 13th last year, and the only US player in the top 10 in the region. The firm now ranks first in the UK for ultra-high-net-worth individuals.
If JPMorgan can continue its European expansion, as well as build in Asia and Latin America, it could be the biggest threat to Credit Suisse and UBS’s global dominance.
Citi is another US private bank to watch. It does better than JPMorgan in Asia and Latin America, and is expanding in Europe, but on its home turf of the US it is overshadowed by larger peers, such as Merrill Lynch Wealth Management, Morgan Stanley, Goldman Sachs and JPMorgan.
There are global challenges facing Morgan Stanley and Merrill Lynch Wealth Management – both are too US-focused – while Citi must stay ahead domestically if it wants to remain in the world top-five rankings.
From a brand perspective, HSBC is often considered the most global of the private banks. It retains a solid third position globally and has moved up regional rankings in Latin America, western Europe and the Middle East.
However, it has its own challenges. For one, its emerging-markets focus means it has been left behind in North America. A slew of senior management changes since 2010 also indicates that the firm is unsure how to topple its biggest competitors. It does, however, have one distinct advantage: it is the only global player to rank among the top-five banks in China.
