BNP Paribas locks horns with European heavyweights

French bank BNP Paribas, which is the eurozone’s largest private banking player, managing €295bn, is fast emerging as a pan-European force in wealth management.

But rivals such as ABN Amro are ready to challenge for the cross-border crown and are not far behind in terms of infrastructure and assets. Global banks such as UBS are also ready to unveil new onshore strategies which could leave the French bank’s reign as a rather short-lived one.

BNP Paribas Wealth Management does have much in its favour however, including a capable duo of co-heads, Vincent Lecomte and Sofia Merlo.

Their approach varies according to which market they are focusing on. In Europe, the firm leverages on retail networks and platforms provided by its corporate and investment bank (CIB). In the US, however, BNP Paribas is developing its franchise through Bank of the West, and in Asia, there is “one bank” approach together with CIB.

Ms Merlo has said previously, talking about the pan-European space in which many of the bank’s ambitions are currently focused, that the offshore, tax-friendly, secretive model, what she calls “a certain type of private banking, but not ours,” is probably on its way out.

The latest expansion plans in Europe, the US and Asia very much involve serving clients in their countries of residence, meeting “international needs in a way that is open and transparent and adheres to ethical values,” rather than from an offshore hub in Switzerland.

Paris remains a centre of excellence, where many key staff are based. But there is clearly a plan to pull away from the Franco-French mentality which has previously hampered the bank’s progress. Leading portfolio managers and private bankers are these days just as likely to be seen visiting the well-appointed, modern offices in London’s Aldermanbury Square as they are frequenting the grander Paris HQ, especially bearing in mind the explosion of the UK wealth management market for both domestic and foreign clients.

While Ms Merlo plays down these trends, saying the bank’s centres of expertise are not based in any individual country and that the bank delivers “excellence to our clients wherever they are,” London is a key growth market for the firm.

“London has indeed become a prominent centre for wealth management and the buoyant real estate market may be playing a role, albeit a rather small one,” says Mr Lecomte, despite claims from competitors that wealth management in London is fuelled mainly by lending to buy property.

The main reason for clients flocking to London, many of whom may have previously been attracted to Switzerland, rather lies in the UK capital’s international status, says Mr Lecomte, drawing more foreigners than any other city in Europe. “These visitors might choose to base themselves in London for some months in the year, and may bring a share of their total wealth to the city,” he adds.

Mr Lecomte is reluctant to talk about Switzerland’s demise as a private banking centre, but this appears to be a trend BNP Paribas is capitalising on as it embraces a cross-border model for European expansion.

“This rising influence of London does not need to be linked to the health of other wealth management centres around the world or Europe, but more specifically to the dynamics of wealth managed locally,” he says. “Such wealth increases, partly, with the growth of the local real estate market but more importantly, with the worldwide interest in London which attracts many foreigners who chose to make London their temporary or, even, permanent base.”

While the bank has invested significantly hiring new relationship managers in the Far East, the Asian strategy may be something of a slow burner. Yet the bank is in expansionary mode in these growth economies, at the same time as rival Société Générale is re-trenching in its core home and surrounding territories.

“Strategic investments” in these countries have not been purely in recruiting talent, but also in training existing staff, sprucing up the brand through new advertising campaigns and updating the bank’s digital technology operations rooms.

“We are committed to Asia because it is a high growth market which increasingly needs the capability of a global network, particularly one that has a strong corporate and investment banking presence in the region,” says Mr Lecomte.

Managed assets in Asia-Pacific were up more than 18 per cent in 2013, with a growing client base in Hong Kong, China, Taiwan, Singapore and India. He winces at the suggestion that Asia is still an experimental playground for European banks. “Don’t forget that BNP Paribas has a very strong heritage in the region with a presence dating back more than 150 years. All in all, the trend in our business is towards investing in Asia.”

That said, BNP Paribas is not taking its eye off the ball in its French home market, where it has managed to maintain a dominant position, managing €80bn, despite competition from the likes of SocGen and Neuflize, a traditional institution that has achieved much recent success in France.

“We have shown that we have an effective model in France,” says Ms Merlo, rattling off statistics regarding 1300 relationship managers in 230 locations across France, serving clients with upwards from €250,000 to invest. There are teams dedicated to both the ultra wealthy and high net worth spaces. One new development has been the establishment of 67 Maisons des Entrepreneurs, dedicated offices where entrepreneurs can manage both their business and personal assets from the same centre.

While previous BNP Paribas bosses have seen Ms Merlo’s department as purely a distribution channel for structured products and other investment banking services, she admits that there is a tricky balance which the bank must build between product capacities and client needs.

“BNP Paribas has a long standing history and pedigree in derivatives and structured products,” states Ms Merlo.  “But the group – including Wealth Management – is singularly focused on providing its clients with the best possible service. Our relationship with clients is based on a holistic approach, in collaboration with all business lines of the group.”

Crucially, she admits, this involves “leveraging products and services from CIB as well as Investment Partners, real estate and insurance. This enables us to deliver tailored solutions to meet client needs.”

These solutions have included ushering clients towards the private equity space, where the bank has also been able to recommend some projects within portfolios incorporating both listed and non-listed products.

“We are advising our clients to diversify their risk,” says Ms Merlo. “Now the current level of interest rates is extremely low. It is always the same question [that clients ask] about how to protect capital over the long run against inflation and this is the same for both European and global clients.”

With interest rates at their current levels, there is no magic solution to portfolio concerns, but one simple, perennial answer. “If clients want to increase their return, they should simply take more risk,” smiles Ms Merlo.

On the bond side, she is advising clients to move out of sovereign bonds and into corporate bonds, high yield, CoCos, subordinated debt and more hybrid paper in general. Clients are also being advised to increase equity weightings. “However, it is important to note that this is an investment strategy decision for the long term,” she cautions.

These relationships can only be deepened, not threatened, by the increased use of digital technology as an interface between client and relationship manager, adds Mr Lecomte. “Clients increasingly want to use technology to engage with their relationship managers and manage their affairs, and we are investing in our capabilities to enable that,” he says. “We are rolling out a global innovation strategy – taking local market requirements into account – which is designed to optimise the ways in which we engage with our clients.”

This covers digital solutions, social media and web and mobile. This series of initiatives crucially involves capturing new wealth and enlarging the bankable pool of assets, rather than just carrying on as before.

The Next Generation programme, in particular, is intended to give a platform to younger clients, who attend a wealth management “boot-camp” typically spread over three days, in France, Hong Kong or Brazil. “This helps to prepare them for the next steps when they take over their family wealth and businesses, or explore new business opportunities on their own,” says Mr Lecomte, who is also continuing to roll out services in the socially responsible investing sphere.

In 2012, he set a goal of passing €2bn in responsible investments managed for clients and by summer 2014, this had surpassed €3bn. New clients are also attracted to the bank’s successful philanthropic advisory team, even though the offer looks less organised than strategies available at rivals such as UBS.

It is this need for a coherent strategy which will clearly determine the success or failure of BNP Paribas Wealth Management, at a domestic, pan-European and international level.

So far there have been two defining moments in the bank’s history – the merger of BNP with Paribas at the turn of the millennium and the post-crisis merger with Fortis, with doubled the size of the wealth management franchise. Along the way, there have been purchases of other banks in subsidiary markets including Italy and Ukraine.

Now as more, smaller units of banks become available on the market, for regulatory or economic reasons, BNP Paribas must act wisely if it is to compete with the industry’s leaders. “BNP Paribas could become a pan-European leader in private banking,” says Ray Soudah, founder of Swiss M&A consultancy MilleniumAssociates. “But they would need to make further acquisitions of local players, which are very difficult to find.”