Asia-Pacific fires up 2004 private banking profits
The explosive growth of the wealth management industry in Asia Pacific appears to be helping to turbo charge the profitability of the world’s top global private banks. This brings good news for shareholders and private clients alike. In our early analysis of the largest private banks that have so far provided earnings figures for 2004, the indications are that the main players have enjoyed a bumper year. However, the full picture has yet to develop as most major houses have still not reported.
Among the first institutions to report in 2005 were the two Swiss giants, UBS and Credit Suisse. Both posted excellent pre-tax profits for 2004, not only from strong markets and improved efficiencies, but also as a result of the increases in net new monies that both notched up as they benefit from the booming Asia-Pacific markets, with the Hang Seng Index notching up an impressive 30 per cent surge in the last nine months, plus the increasing importance of strong branding in the private banking market.
Profits at UBS Wealth Management soared by 32 per cent over the year to SFr3.43bn (?2.21bn) with net new monies up by 42 per cent, while those at UBS Wealth Management USA climbed a respectable 15 per cent, despite an 8 per cent decline in the dollar against the Swiss franc during the year.
What may be most impressive, however, is the performance of the private bank subsidiaries Banco di Lugano, Ehinger & Armand von Ernst and Ferrier Lullin. They are consolidated together with GAM and combined profits rose 11 per cent to SFr443m. Although 2003 profits for the banks were depressed 9 per cent by corporate activity, the jump is still huge and the three banks are bound to have contributed strongly; they accounted for 47 per cent of the combined pre-tax profit figure for wealth management in 2003.
Credit Suisse provided an equally impressive performance and pre-tax profits leaped by 28 per cent to SFr3.30bn. Net new monies were up by nearly 48 per cent, which will help to lay a foundation for continued good performance, particularly if the proposed restructuring of the bank fulfils its promise.
HSBC Private Banking also grew pre-tax profits significantly. They were up 23 per cent to $693m (?517.74m) in 2004. Relative performance was particularly strong in Asia Pacific ex-Hong Kong, where the pre-tax profits rocketed 64 per cent.
Worldwide, net new monies were up some 94 per cent, reflecting the success the bank’s continuing expansion and strengthening of its onshore business.
ABN Amro question mark
ABN Amro has also announced a strong 36 per cent gain in pre-tax profits to ?240m for its private client business unit for 2004. It is unclear, however, to what degree this has been skewed by housekeeping matters such as the integration of new acquisitions into the German subsidiary, Delbrück Bethmann Maffei.
Nonetheless, ABN Amro benefited from a strong domestic market and although the bank does not segment earnings by geography, perhaps its business development activities in the Middle East and Asia-Pacific are beginning to bear fruit.
Looking Stateside, early indications are that 2004 will have been a strong year there as well. Merrill Lynch has reported record pre-tax earnings for its Global Private Client Group, which contains its wealth management activities. The bank does not provide figures by client segment, but $500,000-plus account sizes comprise nearly half of the private client assets under management and it is likely that the healthy margins from these clients will have contributed meaningfully to the 23 per cent growth in pre tax profits for the group.
Things were not so rosy, however, for Citigroup Private Bank. Despite posting healthy gains for the first two quarters of 2004, the bank went on to record a precipitous 50 per cent drop in pre-tax profits for the year to $399m due to charges relating to the closing of the bank’s Japanese operations, as well as the consequent decline in transactional revenues. But 2004 was better at Smith Barney Private Clients, which with the Private Bank now comprises Citigroup’s Global Wealth Management sector. Pre-tax profits at Smith Barney were up 14 per cent.
The overall picture will become clearer as more banks report their 2004 results. Unfortunately, too small a proportion of the key global wealth management players disclose segmented profits numbers, which will make it difficult to obtain a true performance comparison. Until these banks are willing to be more candid, shareholders and clients are destined to remain somewhat in the dark. Sebastian Dovey is managing partner at wealth management strategy think-tank Scorpio Partnership
