Private Banking: Who's Next to Go?

(Picture: Keystone)

(Picture: Keystone)

The much praised growth market of Asia is quickly turning in a liability for many banks. The Asian business of ABN Amro for instance has been put up for sale. What are the likely strategies of the rivals?

It isn't long ago that numerous European private banks identified the growth markets of Asia as the place to be. They have spent huge amounts of hard-earned cash to mount their presence in the city-states of Singapore and Hong Kong.

Some have since been caught out by the financial crisis. Others were more lucky and had the time to properly establish their business for a number of years. Most of them however never earned any money, apart from a few of the bigger institutes.

Expensive Customers

With a global economic slowdown hurting the finance industry, with geopolitical risk increasing, a Europe that struggles to emerge from the debt crisis, and with investors refraining from making any bets on anything, banks are feeling the crunch.

Add to that new financial laws and regulatory requirements that impose higher costs, at a time, when margins have come under pressure with digital banking quickly emerging as a major challenge to the private banking industry in Europe.

«Asian customers are highly cost intensive,» said Evrard Bordier, partner at the Geneva-based private bank Bordier. Since 2011, the bank has been successfully active in Singapore.

Time to Sell

A number of banks have pulled back some of their staff in Asia or have even decided to sell units to their rivals. Barclays, Coutts, BIL and Société Générale all have taken to such moves or sold their local divisions. And now the Asia business of ABN Amro is up for sale, as reported last week.

The unit has $20 billion in assets under management, according to data available. Too little to make the business work in Asia, in particular if the brand is far from well known in the region.

ABN Amro not long ago put Anuj Khanna in charge as new head of private banking in Southeast Asia – an appointment intended to foster a new dynamic. Now, his task seems to be to find a buyer for his unit.

Successful Swiss Banks

Swiss banks in Asia still are doing fairly well, due to three reasons mainly: first, the big institutes have been active in the region for decades. Second, they have a big private-banking knowledge. Third, they still enjoy an immaculate reputation – apart from a few notable exceptions.

Helped by the pioneering work of UBS, Credit Suisse (CS) and Julius Baer, other Swiss banks have been able to establish their business in Asia.

Reluctant Onlookers

Swiss banking has so far remained reluctant to get involved in the consolidation, even if the players all received the dossiers of the companies that have been put up for sale, a Singapore-based banker told Union Bancaire Privée (UBP), a Geneva-based institute, was the only one to pounce, swallowing the substantial Asia business of Coutts in 2015.

CS and Julius Baer have been mooted as potential buyers of the ABN Amro unit, but for CS, the division would probably be to small a catch. The Swiss giant has added a string of new relationship managers over the past 12 months and been able to expand without having to carry the burden of integrating an acquired unit.

Bullish Bears

Julius Baer CEO Boris Collardi by contrast has a penchant for making acquisitions and Ian Pollock, the private-banking boss for ABN Amro in North Asia (Hong Kong), was in a comparable position at Julius Baer from 2009 through 2011. Insiders say that he would be able to quickly integrate the business into the Zurich-based company.

In reality though, these relatively minor deals won't help Swiss banks much developing their business in Asia. They are well established and some are doing very well, as for instance LGT. The Liechtenstein-based bank has about 25 billion Swiss francs in client assets, that it is managing in a highly profitable way. An acquisition by contrast is expensive and carries risks.

In other words, buying in Asia is something for banks that can't grow organically. That's the type of company ready to invest a lot of money, pushing up the prices for bank for sale.

Regional Champions

Local institutes, which have identified private banking as their future core competence, are evidently busy participating in the ensuing bidding wars. An example of which was DBS, which bought the Asia unit of Société Générale, at a price that insiders say was inflated. The acquisition of Barclays Asia by Bank of Singapore, a unit of OCBC, is a similar example.

Swiss banks may thus remain passive onlookers of a process that is likely to continue. UBP for instance, otherwise quite happy to acquire business, needs time to consolidate the integration of Coutts, Guy de Picciotto repeatedly told

Eager U.K.-Based Buyer

One likely contestant is Cazenove Capital Management. The wealth-management unit of Schroders recently bought the private banking of C. Hoare & Co in London and is eager to expand further.

Former CS-banker Simon Lints in the summer took charge of Cazenove in Asia and is said to enjoy the full support of his CEO, Andrew Ross, for a further expansion of the business.



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