Private banking and wealth management awards 2007:
FOR THE FOURTH time, UBS Wealth Management takes the title of best global private bank in Euromoney’s annual private banking survey. Through acquisitions and aggressive expansion, the Swiss bank has succeeded in building up a presence across the globe and rolling out its holistic wealth management solution to the broadening needs of high-net-worth clients.
The results of this year’s survey, however, point to growing competition from regional players on their home turf. Global private banks will need to develop their onshore capabilities strongly to compete, or look to make acquisitions. A global focus by private banks on clients in the wealth creation phase is further intensifying competition. Private banks have to convince clients that they have access to the best-of-breed third-party products in alternative investments, and access to balance sheets to aid high-net-worth investors in this phase of the wealth cycle.
Private banking: Where to focus? More on private banking
Which regions and countries offer most opportunity? Private banking awards photos
Private banking: Who to focus on?
Which type of client will be the highest growth area in 2007?
Private banking: What to focus on?
Which products/services do you see most demand for?
Regional expansion
As the move to onshore banking plays out, private banks significantly expanded their geographical reach in local markets over 2006. HSBC Private Bank, which retains the position of third-best global private bank this year, has expanded in all of the 30-plus countries where it operates. Chris Meares, CEO of HSBC Group Private Banking, says: “The Middle East, UK, Asia, and Latin America have been the largest growth markets for us. In the UK, we have expanded by opening regional offices, including Leeds, Manchester, Cardiff and Birmingham. In addition to the UK, Russia continues to generate interest by the market as private banks find ways to serve this growing client base. The Middle East benefits from liquidity due to the oil and gas industry, where we have been able to expand organically through our onshore proposition. Islamic banking is an important part of a wide range of products offered in the region.”
Growth opportunities seem to spring up everywhere Meares looks. He says: “Latin America continues to show promise, as the region continues to improve and economies show increased stability. In Asia, we continue to grow in the region as it is on our back doorstep. China has promising prospects for the industry, while Hong Kong remains an important centre, benefiting from China’s economic growth and having a history considered favourable by private bank clients. Singapore also deserves attention, as its private banking market benefits from wealth creation in Asia.”
In the move to onshore operations, the global private banks are competing with local players that benefit from their longstanding presence in their respective countries. In Asia, a region of substantial growth in wealth, regional players such as Chinatrust Commercial Bank, Hana and Shinhan this year make it into the top 10 best private banks in the region. In western Europe, European names have replaced the non-European global banks in the top 10 for overall private banking services. Similarly in Latin America, regional players such as Banco Itaú, Unibanco and Pactual appear in the top 10 best private banks.
The more demanding client
The needs of high-net-worth individuals are becoming increasingly similar to those of institutions. Much of the world’s increasing wealth is being driven by business owners and entrepreneurs who are in the wealth creation phase. Many of the private banks, especially those within firms with investment banking capabilities, have been developing a focus on clients in this area. Such clients are looking for ideas on how best to release capital from their businesses to invest, or for advice on how to grow their businesses. Citigroup Private Bank and UBS Wealth Management battle it out in the top two positions for best global private bank to corporate executives and entrepreneurs, and in corporate advisory for private banking clients. Damian Kozlowski, CEO of Citigroup Private Bank, says: “Wealth creators need liquidity. Most entrepreneurs worth more than $100 million usually have only $20 million in liquid assets, the remaining part being ‘locked’ in their business. We can be a provider of capital to their businesses. Examples of this include capital call lines to private equity funds, sports franchise advisory and finance, and commercial real estate finance. There is a significant opportunity for us to work with entrepreneurs as their ‘private investment bank’ during the wealth creation cycle prior to a liquidity event. In the US, we have increasingly defined our coverage model and solution set in terms of key wealth creation sectors, like real estate and financial sponsors, as investment banks have done. There is a significant opportunity to apply this model outside the US as well. For example, the UK is the world’s second-largest financial sponsors market. Real estate is obviously also a critical driver of wealth creation in markets like Mexico and Hong Kong.”
Michael Lagopoulos, president and CEO of global private banking at Royal Bank of Canada, agrees that this wealth creation client segment is posing new challenges for private banks. “We have done an increasing amount of structured product business in the last year and developed customized solutions for business owners and executives who may be insufficiently diversified or have concerns around single-stock concentration. Lending is also a growing and increasingly important part of our business.”
The majority of banks asked which products or services they have seen demand for mentioned structured products and alternative investments. Boris Collardi, COO of Bank Julius Baer, lists alternatives, structured products, tax advice, foundations and trusts, and credit as seeing most demand, in that order. HSBC’s Meares says: “We continue to see strong flows into hedge funds and emerging market products. Structured products remain popular, especially equity-linked ones in Asia.”
It’s a sign of the maturation of the industry that private banks are able to meet the diversification needs of their clients and ensure assets are allocated to non-traditional investments. Many have invested in their third-party product research capabilities in order to ensure that their clients get access to the best-of-breed products. And such products have to give access to global markets.
Walter Berchtold, CEO private banking at Credit Suisse, says: “On the product and services level we are seeing that high-net-worth individuals increasingly invest in global themes. They expect from their bank a range of investment alternatives including premier mutual funds as well as innovative structured products. Ultra-high-net-worth individuals demand tailored solutions or theme-based specific discretionary mandates.”
With the majority of private banks seemingly focused on regional expansion, and the growing but somewhat limited client base of entrepreneurs, consolidation seems inevitable. RBC’s Lagopoulos says: “More and more financial institutions are beginning to establish private banking within their offerings. It’s becoming a highly competitive market for talented wealth management professionals, particularly with international expertise. We expect consolidation to continue. Those who succeed in private banking will do so by focusing on a core ability as a niche player, or as a consolidator. We intend to be the latter.”
