Market volatility remained high in 2012 as the eurozone crisis intensified, fears persisted about China’s slowing growth, and the US offered its own uncertainties with an election and a fiscal cliff. For the world’s private banks, it was a continuing battle to find yield for clients and to protect their wealth from geopolitical risk – all in the face of increasing regulatory requirements and pressure to cut costs and increase revenues. The cost of compliance is 10% of the turnover of private banks and wealth managers, according to research by ComPeer. "With costs and the time that is required to be compliant with the tsunami of regulations that have been introduced over the last decade, only those truly committed are able to maintain a business today," says Bruce Weatherill, a private banking consultant and board member of ComPeer.
It is a marked change from when the first Euromoney private banking survey was published in January 2004. Back then the private banking industry was enjoying rapid growth. Survey participants reported growth in assets under management over 2003 to be 16.7%. This year participants reported annual AUM growth of just under 11%. In 2003, markets were reliably producing annual double-digit returns, M&A activity was everywhere, salaries were climbing and the biggest concern was how to keep a client’s money secret. Private banking was an industry that everyone wanted to be in. Local retail banks started to add private banking capabilities. Those serving the super-affluent branched into the higher-net-worth segments and vice versa. In the 2004 survey, respondents claimed to be offering services in every wealth stream from super-affluent to ultra-high-net-worth. This year, there is a stark contrast. Respondents have had to home in on where their strengths lie and have begun to focus on specific wealth segments. Now their responses reveal that they do not want to be everything to everyone. "At a business-model level there has had to be a dramatic adjustment in expectations over the past decade," says Seb Dovey, managing partner at private banking research and advisory firm Scorpio Partnership. "At the start there was unabashed exuberance regarding growth. The strategies of most wealth managers in this context have never met expectations. Today we are in an environment where virtually all wealth managers are feeling not just a pinch but a total squeeze. Five years of relatively static growth makes it difficult for many to endure under their historical approach to the market."
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As the Euromoney survey celebrates its 10th anniversary, the traditional private banking characteristic of secrecy and tax advice dished out in oak-panelled boardrooms also seems a distant memory. In 2003 tax guidance and advice was offered by 64% of respondents. Now that figure has dropped to 59%, and banks are quick to point out that they are not tax advisers. The products and services offered by the private banks have also changed. Around 80% of respondents 10 years ago offered hedge fund investments. Now that is 65%. Structured products that were also the bread and butter for many private banks have lost their shine. Ten years ago around 87% of respondents said they offered structured products; now that has fallen to 77%. "Over the last decade, and particularly since trust was lost over the financial crisis, clients have wanted simpler services and simpler products, and that has had to be reflected by the banks," says Weatherill.
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Philanthropy has become more important as the baby boomers have aged. Only a third of private banks offered advice on philanthropy in Euromoney’s first survey. Now more than half of the industry is involved with it. Private banking has become increasingly transparent, global and modern – in line with the clients it now serves. (See how the chief executives of the leading private banks comment on the differences in Euromoney’s roundtable) Yet some things have not changed. The top five best global private banks ranked in the survey are the same players: UBS, Credit Suisse, Citi, JPMorgan and HSBC. It is the large players with global footprints and diversified revenue streams that have managed to weather the credit crisis and remain relevant with high-net-worth clients.
Over the years the top-five banks have jostled for position. This year a shake-up in the rankings has occurred as the financial crisis settles and those firms that have spent the past 12 months focusing on private banking have made headway. UBS has returned to the top of the global table after a three-year hiatus and this year wins the award for best global private bank. Credit Suisse had stolen its position, but after mending its reputation in the US and domestic market of Switzerland, UBS has succeeded in returning to the position it held when Euromoney’s survey began. Regionally the firm is back on top. In western Europe it ranks first this year, moving Credit Suisse to second place. In Asia, too, UBS has made headway, ousting long-standing leader in the region HSBC, which this year moved from first to third behind Citi.
JPMorgan also stands out this year. The bank has made it to third position globally, up from fourth last year, and across a wide range of products has made considerable strides to top-two positions globally, such as in equity and fixed-income portfolio management and structured products. It ranks first in its domestic market of north America and has made leaps up the table in Latin America. This year it ranks second in the region behind Citi, which has returned to a number one position after being ranked third last year.
Back in the top 10 globally too is Goldman Sachs, nudging Barclays out despite the latter’s big investments in its wealth management franchise. Indeed a glance at the top 10 this year compared with the first Euromoney survey shows little change among the players, emphasizing the success of the global strategy. Other than Pictet and MeesPierson, which have been replaced by Santander and Merrill Lynch, the top 10 private banks ranked globally remain the same. Where there have been notable changes is among the 11th to 25th positions, indicating the pressures on those banks of medium size and the impact of globalization. In a market once dominated by Europeans, Asia’s banks are now competing globally. Kotak Mahindra, Bank of China and China Merchants Bank now rank among the top 25 private banks globally.
The world of the wealthy has changed dramatically over the past 10 years and is on the cusp of yet further changes as Asia’s population of wealthy individuals increases, and as banking and technology collide. According to a study by SEI, Scorpio Partnership and Standard Chartered Private Bank, high-net-worth individuals spend more time using digital channels such as email, instant messaging, social networks and texting than those lower down the wealth spectrum. And wealthy individuals in Asia-Pacific communicate more via digital channels than in Europe and the Americas. The chief executives of private banks highlight that over the next 10 years technology will be one of the biggest changes for the industry. But it means yet further costs for private banks. In a less profitable industry than a decade ago, only those institutions committed to private banking are likely to stay the course.
