Private banking growth on hold

Next to mutual funds, private banking is the other Spanish industry facing problems because of the subprime crisis. This sector has been growing at impressive rates during recent years. In 2006, assets under management grew 15 per cent to 36 per cent of the potential market place. The boom in the real state sector, good performance of stock markets and low interest rates all helped boost wealth creation and created many new private banking customers. However, many of these once stable pillars have, if not started to crumble, then become a little less stable in recent months.Jaime Hap, Spanish managing director of private banking at Fortis, explained that a big part of the inflows into the sector in recent years came from corporate deals. In fact, said Mr Hap, 50 per cent of the new wealthy people derived their assets from the sale of companies. For this reason, the continuation of this trend is key for Spanish private banking professionals. But currently, optimism is falling away, as the liquidity crisis has made it difficult to finance new deals. Next to company sales, Alfonso Martínez Parras, managing director of private banking at BNP Paribas in Madrid, believes there are other particular factors that have fuelled this industry. One of these factors has been the strength of the Spanish real state sector, linked to stock options of its executives and also, in a smaller way to the savings and investments of the sector’s workers. Nevertheless, Mr Martínez Parras said that “if the stock markets continue falling, making stock options less valuable, and if the real estate sector does not re-awaken, the crisis will begin to affect private banking”. He also said the future of the sector will depend increasingly on how institutions can attract clients, particularly from competing institutions. Attracting clients This notion of institutions wrestling clients from one another was re-enforced by Santiago Satrústegui, managing director of Abante Asesores, who predicted that the market will be a smaller one in the future. “We will have to fight to get money,” he told the Madrid conference. However, latest information shows there are still opportunities in the private banking sector, with much new money still to won. “The Spanish private banking sector is still immature”, said Javier Gefael, managing director of Popular Banca Privada. Attending to Mr Gefael, one of the key drivers able to motivate substantial growth in private banking will be an interest rate cut from the European Central Bank (ECB). “I see money that is actually in banking deposits coming back to our sector if there are cuts in the rates”, he affirmed. Alternative investments But banks also need to offer new types of investment in order to bring in private client asses. One of these might be alternative investments, with real estate, venture capital and art investment all highlighted. Mr Hap from Fortis, emphasised some principles that private banks should follow: “Looking for new ways of investment, being transparent, and keeping a close relationship with our clients are all important factors for us”. He also considered it crucial to build diversified portfolios for private clients. Currently, he said these should incorporate alternative investments, bond arbitrage strategies and products to take advantage of real estate opportunities. To Mr Gefael, of Popular Banca Privada, it is clear that “we are coming to a client with a global watch”. Mr Gefael said that his current priority is to offer products “able to create confidence for clients.” He cited money market funds and bank deposits as examples of these. According to Mr Martínez Parras, from BNP Paribas, the best strategy in this market is “trying to steal clients” through the strength of a global brand combined with investment competence. He also mentioned the importance of a diversified portfolio and emphasised products such as commodities and hedge funds, which BNP Paribas offers in association with its boutique provider, Fauchier Partners. Santiago Satrústegui said that the strategy of Abante for the next years is to differentiate itself from its competitors, to “be different, in the practice, to run in the other direction”.

Hap: Optimism falling away