Silver lining to cloud over private banking
UBS and Credit Suisse may have posted disappointing results but both are doing well in Asia, the key battleground for private banking
Recent bank share price fluctuations, following below par results for UBS and Credit Suisse, suggest private banking may be a precarious business.
Every time new private client money dries up, there is a suggestion from analysts that the world’s leading wealth managers are entering times of trouble. The news of a private banking slowdown comes at a time when both these global gorillas have pulled back from investment banking – unprofitable under new market conditions – to concentrate on servicing wealthy clients.
But rumours of their demise are vastly exaggerated. Pre-tax earnings may have been down 27 per cent for UBS in the fourth quarter of 2015, with outflows of SFr3.4bn ($3.4bn), blamed on “very low levels of client activity”, increasing “risk aversion” and “significant client deleveraging”.
The bank claims a host of macroeconomic challenges and geopolitical risks are further clouding the waters.
$520m
Pre-tax earnings were down 27 per cent for UBS in the fourth quarter of 2015 to SFr505m ($520m)
The picture, however, is not a uniform one globally. In the Americas, where many global wealth managers have pulled away from business due to regulatory fears, UBS posted nearly $17bn of net new money, shepherded in mainly by recently recruited bankers. Asset flows were strong in Asia and Swiss home territory, even if they faltered in the UK, much of Europe and some emerging markets. Despite these local difficulties, the bank will not give up on Europe and will continue to invest in operations there, as seen by the acquisition in 2015 of Banco Santander’s Italian private banking business.
If Switzerland, where Zurich bosses still talk about surviving a “near death experience”, is returning to reasonable health, things cannot be all bad for UBS, even if M&A consultant Ray Soudah of MilleniumAssociates predicts a “massive cost-cutting environment”.
But it is the Asia-Pacific region that will be the key battleground for private banking. Both UBS and Credit Suisse have done well in Hong Kong and Singapore, with advisers still being rapidly recruited.
UBS has opened a new wealth management hub in Kowloon, a ferry-ride from its traditional Hong Kong Central headquarters. China-focused entrepreneurs see the district’s bustling backstreets and apartment blocks, with their warrens of home-based businesses, more conducive to start-ups than the more sedate colonial-style culture across the water. There are also plans at UBS to double the overall mainland China headcount from 600 to 1,200 over the next five years.
Both UBS and Credit Suisse have done well in Hong Kong and Singapore, with advisers still being rapidly recruited
While Credit Suisse suffered outflows in its international business, its bankers in Apac garnered SFr3bn of net new money in the final three months of 2015, with a total of SFr17.8bn from the region for the year.
Analysts have been too harsh on UBS, believes Christian Edelmann, head of consultancy at Oliver Wyman’s influential corporate & investment banking and wealth & asset management practices.
“Revenues and profitability are up; it is net new money that spooked the market,” says Mr Edelmann, with watchers ignoring positive performances of both banks, particularly Credit Suisse, in the Asian wealth management heartlands.
Critics who hint at a structural decline in wealth management are singing from the wrong sheet, he believes. It is the fall of equity markets, which has hit flows and revenues, not the failure of relationship managers to keep wealthy clients onside.
Those banks who invest in their Asian wealth franchises succeed, with the majority of the world’s wealth now created by entrepreneurs in China, India and surrounding markets. “Asia is an increasingly important long-term story to access,” says Mr Edelmann.
But the challenge for global banks is to remain profitable in these markets, without the benefit of extensive on-the-ground networks attached to local players. Increasingly, clients in Asia need loans to grow their business. This means decisions about credit risk, assessments about future prospects of private clients’ start-up ventures and indeed many more strategic wealth management calls need to be taken locally, on the Asian waterfronts, not in Zurich head-offices.
