New wave of private banks better placed to perform to regional audience

The glittering Global Private Banking Awards, presented to the world’s leading wealth managers at the Four Seasons Hotel, in London’s Park Lane, is always a joyous affair. But the nuances which underline trends among award-receiving and award-seeking banks can be more complex than initially appears from the line-up of winners, striding confidently towards the stage in time to anthems supplied by the ghosts of David Bowie, Donna Summer and Freddie Mercury.

Of the three wealth managers running the most assets – UBS, Bank of America Merrill Lynch and Morgan Stanley – the Swiss giant is the only one to succeed as what private banking consultant Sebastian Dovey calls “a truly global wealth management enterprise with crucial mass in several market regions”.

Success in so many different geographies sets UBS apart from not just the Americans, but rival Swiss firms, other continental outfits, aspiring Asian players and Latin American hopefuls. “Given its scale, it is going to take a transformative step by a rival institution to catch up in AuM terms,” suggests Mr Dovey.

But the task is by no means impossible. When FT titles PWM and The Banker magazines first launched these awards nearly a decade ago, there were occasional groans from the audience assembled in Geneva when the all-too-familiar winners came up the stage for multiple awards. But these were not Swiss banks who were dominating proceedings. In fact, the Swiss audience were jealous that private banking, the very market they had created, was being dominated by the foreign interlopers of HSBC and Barclays Wealth.

Stepping up

Where are these banks today? The financial crisis, commercially-driven restructures and legacy and fraud issues concerning high-risk clients put paid to the long-term private client-servicing ambitions of these two universal banks. There were several institutions well-placed to succeed them, including Credit Suisse, Citi and JP Morgan. But UBS stepped up to the plate more confidently for several reasons, despite being almost destroyed by the financial crisis of 2008. 

Firstly, it settled its legacy issues with the US authorities quicker and more cost-effectively than rivals. Secondly, it recognised the future of private banking lay in asset management. And thirdly, it was prepared to invest to constantly improve and innovate, rather than resting on its laurels.

The new pressures transforming  private banking today, discussed by PWM for so many years, are finally taking root, comprising digitisation, regulation and demographics dictating a new customer-centric palate of millennial-friendly services.

While few are prepared to seize the nettle in the same way UBS did, there are a handful of banks expected to prosper and take the fight to the Swiss leaders. While the Swiss banks will likely triumph for several years to come in their continental European heartlands, the regions of Asia, Latin America and Africa are already being lost by the European colonisers to  regional champions. In addition to an intricate understanding of local preferences and cultures, they are benefiting from lower cost bases, stronger branch networks and a more native approach to digitisation. 

They include very modern banks such as Asia’s DBS, Africa’s Investec and Standard Bank and Latin America’s Itaú, LarrainVial and BTG Pactual. Let’s also not forget the onshore players in Europe, including BNP Paribas, Caixa, BBVA and Coutts, likely to increasingly build market share on the Swiss doorstep. 

There are now essentially two business models in private banking, the fully onshore model and the “intershore” approach, a fully declared and transparent model acknowledging that clients’ business can be domiciled in multiple jurisdictions.

Plenty of room

PWM has long been arguing there is space for more regional scale operators. All of us also welcome the increased choice this gives to clients and the opportunity this will give them to work with relationship managers and expert hubs that better understand their way of thinking. 

The report card for DBS is now so promising, as it builds up its standing across the region, not just in its Singaporean home market, that it is on the verge of a breakthrough. It can be further encouraged by the fact that despite there being a large Chinese diaspora across Asia, the domestic Chinese market is so strong that a pan-regional approach may prove a distraction for the likes of ICBC and China Merchants Bank. This is a similar logic to why Bank of America and Morgan Stanley, concentrating on the riches in their US home market, have failed to challenge the Swiss leaders.

Unlike DBS, the European private banks that have dominated Asian wealth management until now are digital migrants, forced to spend extensively on transformation, rather than the digital natives, who build infrastructure from scratch. DBS and its peers do not share the unease of the older European banks used to working in an analogue world, wading gingerly into unknown digital waters. 

Many clients in Asia are not happy with the Western banks bringing a “plug and play” approach to the East. Some US and Swiss banks refuse to adapt their approaches, saying the needs of a global audience are identical wherever they interact. This strategy, designed to save on costs by imposing a central model, is short-sighted.

“Clients here demand specific Asian solutions that may require specific customisation to local currencies, local assets and liquidity solutions,” says Su Shan Tan, group head of consumer banking and wealth management at DBS. This requires deep understanding of the local markets, in addition to tailored liquidity and credit solutions. 

Another key question will be around which banks can transform themselves into digital organisations to mimic the ‘Big Techs’ which gather data and prowl the worlds of commerce, social media and payments services, increasingly raising and lending money and providing financial services, able to easily cross-sell and provide personalised offers. While these organisations appear to be able to effortlessly stray into banks’ spheres of influence, how far can the banks move into their orbits? It seems that today, the operators from developing countries are more prepared to work in this milieu. 

For those private banks that have made their names firstly in Western markets, offering traditional services, it appears that the song no longer remains the same.