Global Private Banking Awards 2017 - Analysis: Regional players rise up to compete for global prizes

During a time of disruption from new technology, regulation and the changing Next Generation mindset, there is much internal discussion going on within private banks about how much they need to change to keep up with client needs and what the private bank of the future will look like. Many, even the biggest, are worried that if they do not make the transformation quickly enough, they will be replaced by rising institutions which are innovating faster and may even leave a gap for new-style, digitised entrants to the market.

These appear to be the main themes of pre-occupation in the private banking community, as PWM and The Banker magazines present their ninth annual Global Private Banking Awards. While UBS is still reaping the rewards of many years of investment in scale and technology, this year winning awards for philanthropy, client-facing technology and servicing the increasingly important ultra high net worth (UHNW) segment, as well as maintaining the ultimate crown for the best global private bank, it is clear that other banks are catching up. 

UBS is still setting the pace, coming up with new far-reaching goals, leading in digitisation and increasingly investing in the ‘softer’ side of the business, working with family offices, drawing up succession plans and encouraging women entrepreneurs. But key competitor Credit Suisse is running UBS close in several markets, especially Asia, which is no longer being given so much emphasis among UBS bosses, now that growth has slowed down. Yet Credit Suisse also faces challenges to its business model.

Several members of our 16-strong judging panel believe the Swiss leaders are under more pressure than ever, even though UBS is still considered the best all-round private bank. And regular conversations with top management at UBS show the vast amount of new ideas and innovations constantly being dreamt up by the bank reflect a mounting sense of insecurity about holding onto the top berth in the future. “While UBS has become a benchmark for others to emulate, unless it continues to raise the bar, it will not be able to retain its pole position,” says Amin Rajan, founder of the Create-Research consultancy. “No bank has ever managed to remain at the top for more than a decade, thanks to the curse of success: success invites hubris and hubris creates nemesis.”

Fellow judge Christina Baltz, a wealth planning and tax partner at WithersWorldwide in New York, agrees the heat is now firmly on UBS. “UBS has a great global brand and does offer the pre-eminent global platform for the client who needs or wants that,” says Ms Baltz. “But it’s impossible for any institution to be all things to all people, so there is plenty of room for others to succeed at being the firm of choice for niche or bespoke offerings that ‘global citizen’ UHNW clients want, or to be the firm of choice in a client’s local market.”

Moreover, the ‘one-bank’ model, which has dominated the thinking of the largest banks for more than a decade, using private banking often as a distribution channel for asset management and investment banking products, while still going strong, may have a limited future shelf-life.

“The two Swiss banks, as well as other competitors, are increasingly selling in-house products with inherent conflicts,” claims Ray Soudah, founder of M&A and strategy consultants MillenniumAssociates. “Furthermore, their investment banks are not always interested in the projects which the private banking division brings.” Private clients, believe Mr Soudah and other commentators, still want and will increasingly demand fully independent advice, which they are not currently receiving from some of the leading private banking players. 

Any such doubts among leading Swiss banks will be further stirred given that Citi has secured the awards both for global brand and global customer service. There appears to be a recognition, among both consultants and clients, that simply spending millions on billboard posters, fancy TV advertisements accompanied by tunes which tug at the family heartstrings and on sponsorship of international sporting events, to which the wealthiest clients are invited, is simply not enough. Clients are also increasingly asking: “What does that brand mean for me?” If it really is just a Kitemark on a leather portfolio folder which is given to the client, or a badge on another accessory, that is no longer enough. Clients are increasingly expecting the bank to deliver on its brand, for the bank to improve their life, either financially or in terms of allowing them to play a role in the development of society through impact investing, private equity and philanthropy. The ideal bank will be able to fulfil all of these needs.

The rise of some of the previously ‘boutique’ banks to become much larger institutions – UBP, Vontobel and two of our award winners, Geneva’s Banqe Syz and Liechtenstein’s LGT, spring to mind – shows customers are willing to look away from the leaders for their private banking needs, especially when it comes to more niche services such as private equity, hedge funds and impact investments. Some boutiques, according to Mr Soudah, are already starting to shake off their artisan roots and succumbing to the temptation of emulating the larger “utilities”.

“By focusing on a limited number of specifically targeted countries or markets,” suggests Withers’ Ms Baltz, this cohort over time “can compete with the big players in those countries.” She cites Vontobel’s increasing US penetration of HNW clients, using investment strategy as a key differentiator, as an example of this trend.

Regional champions are also fast emerging to tackle the global players, with DBS in particular, a very innovative forward-looking bank in Singapore, now taking its place as one of Asia’s leading institutions. This trend is expected to continue and accelerate. “Local and regional players will eventually dominate the private banking landscape in Asia, as they have the cheaper cost bases,” calculates Mr Soudah, expecting the Chinese banks to eventually enter the broader pan-Asian space through large acquisitions in the next few years.

“As the local players develop their brands, they will challenge the supremacy of the Swiss banks,” adds Create’s Mr Rajan. “UBS and Credit Suisse will have to work exceptionally hard to remain at the top in Asia.”

Similarly, the economics are likely to lead Latin American banks such as Itaú and LarrainVial to leverage their brands and low cost bases to become the most prominent players on their own continent, exploiting the market gaps left by “traditional players” such as HSBC and RBC, believes Mr Soudah.

This theme of the market becoming more open to the rise of other big, medium and small banks to compete with the “behemoths” is a long-term and persuasive one, believes independent family office adviser and former private banking boss Gerard Aquilina, who cites the emergence of DBS, Itaú and BTG Pactual and the growth of Swiss player Julius Baer as evidence of this trend. He expects the growth in breadth and depth of Latin American capital markets – which also help stabilise economies and encourage wealthy private clients to re-invest their wealth locally – to boost product offerings for regional banks and help them compete with international players. He believes there is “too much hype” regarding the ability of universal banks to truly wed their investment banking and private banking offerings, saying the likes of Julius Baer are competing very effectively, despite not having investment banking capability.

With the growth of local banks, has come the withdrawal of many international banks from regions including Latin America, believes Mr Aquilina, their hands being forced by pressures on tax compliance and re-focusing on key markets in the post-2008 clean-up.

“There are now some truly excellent local players in Latin America, from Banorte to LarrainVial to Itaú and Pactual,” he says. “These banks can easily rival the international banks in terms of product choice and the high calibre of their wealth advisers.”