Enjoy the beauty of private banking

If yesterday’s key financial accessory was an asset management unit, today’s is a distribution network. Consultants have been questioning the wisdom of banks outside the hallowed Swiss axis of UBS/Credit Suisse/Julius Baer staying in wealth management. Bankers and asset managers tell a different story. Current profits from wealth management remain strong, as banks take a percentage cut of assets they supervise. But even in leaner times, they will look to private banking, not as a profit generator, but a distribution channel. Alain Papiasse, who runs an 18,000-strong workforce at BNP Paribas – with a remit encompassing asset management, securities services and life insurance as well as private banking – says he will not sell his private bank, even if he has to hand over two-thirds of its revenue to the group’s retail bank, under BNP’s joint venture format. The beauty of private banking, admits Mr Papiasse, is that it allows you to sell not only asset management products to high net worth individuals, but also equity and fixed income derivatives so beloved of investment bankers. The story is the same at Credit Suisse, where the relatively new “one bank” structure means private bankers are increasingly sharing resources with asset management. The two did not used to get on so well. Now, if a new fund idea is created by Bob Parker’s asset management teams in London, it is not long before it finds its way into the presentations which Zurich-based private banking overlord Burkhard Varnholt makes to treasured wealthy clients. Both BNP and Credit Suisse used to bang the drum for open architecture, touting solutions from external managers. These days that drum is not making as much noise. The most exciting news for Mr Papiasse has been the acquisition of Italy’s Banca Nazionale del Lavoro, not for its skills in asset management, but for its role as a virgin network through which to distribute BNP-branded products. Rival Société Générale Asset Management is not being left out of the party, having devised a special product range to be pumped out through SocGen branches, and through banking outlets it has been quickly acquiring in Asia and Eastern Europe. Linked with this renewed faith in distribution is the realisation that traditional management of assets for pension schemes and state bodies is not really very profitable. For BNP Paribas, Société Générale and the newly created Natixis, it is almost becoming a loss-leader and testing ground to develop products for the lucrative distribution market. This is something that Massimo Tosato, the wily head of distribution at Schroders, realised many years ago.