American Express? That will do nicely

South East Asia continues to dominate wealth management headlines. The latest news is that Standard Chartered has won the race to buy American Express’ private banking operations for $860m (E605m), trumping players said to include Citi and Wachovia. According to Standard Chartered, the deal (which equated to just under 4 per cent of assets) will be financed by internal resources and a debt-funding programme. The company hopes to complete integration in two years, at which point it predicts annual pre-tax cost savings of more than $100m. This is an ambitious move by the bank in its continuing attempt to recover in the region following the contentious sale of its Far East-focused private banking division a decade ago, which kick-started the ambitions of the purchaser UBS. Bank executives have talked of the deal as a “turbocharge” in the development of Standard Chartered’s private banking capability, but some simply call it making up for lost time. In any event, the bank asserts that the deal will advance its wealth management roll-out by three years. The acquisition, adding $22.5bn in assets, will give Standard Chartered private banking deeper imprints in its traditional markets in the subcontinent and East Asia. These, along with Africa, provide some 90 per cent of group profits. The move will add private banking offices in Manila, Jakarta and Surabaya to recently opened sites in Dubai, Singapore, Hong Kong, Shanghai, Beijing, Seoul, Mumbai and New Delhi, as well as exposure to new markets in North Africa and Central Asia. A key segment that Standard ­Chartered plans to address is the mushrooming ranks of owner-managers who are helping to fuel Asia’s economic boom. It is unclear exactly where Amex PB fits in this plan. Nonetheless, these entrepreneurs have special requirements that require a 360-degree focus by wealth managers. They are still in the first-generation wealth accumulation stage and a large proportion of their wealth is tied up with their businesses. They require a full-wealth structuring service that can focus on their assets, their liabilities and in time, the events that will help to monetise some of their fortunes. According to Standard Chartered, some 63 per cent of Asian HNWs are business-owners and of these, 58 per cent have more than half of their wealth invested in the business. The resulting lack of liquidity is one reason that Asian HNWs rely heavily on leverage. In fact, 67 per cent of the HNW respondents in a recent Standard Chartered study used leverage for a number of purposes, broken down as follows: 33 per cent investment properties; 29 per cent residential real estate; 29 per cent working capital; and 19 per cent equity financing. Uncertainty over the relevance of ­private banks to these newly rich individuals is adding to the challenge. The research shows the average Asian millionaire attains this status by the age of 34. However, only 20 per cent of Asian HNWs under 40 use private banks (as opposed to 78 per cent over the age of 50). The top issue cited by these HNWs that might persuade them to use a private bank was the quality of the relationship manager – investment performance came second. Therefore, Asia is no different from anywhere else when it comes to the importance of the client experience. So what can private banks do to attract the newer generation of Asian tycoon? The answer lies in the sound of the drum that Scorpio Partnership has been beating for some time: invest in the quality of relationship managers. This comes not only through hiring successfully, but by investing intelligently in the maintenance of this human capital through ongoing education and training programmes. This investment will increasingly become a key differentiator not only for engaging clients, but also engaging and retaining personnel as the competition for client and human assets intensifies in the Asian market. Ted Wilson is managing partner at wealth management strategy think-tank, Scorpio Partnership