London calling as Investec sets sights on UK market

Ciaran Whelan, global head of private banking at Investec, is visiting the bank’s Gresham Street offices in London to help boost the South African player’s UK operation. His last sojourn was to Australia in April, but that was about selling up rather than investing.

“We ended up selling our Australian operation to the Bank of Queensland,” reflects Mr Whelan. “We just could not compete against the big four players.”

No stranger to cutting his losses and concentrating on more lucrative markets, Mr Whelan also pulled Investec out of the obstacle-ridden global trust business, offloading the bank’s fiduciary arm – with offices in Jersey, Geneva and Mauritius – to the Salamanca Group in October last year.

A reluctance of clients to “upstream” their money into cash, bonds and equities handled by Investec’s wealth management arm was one of the reasons for the sale, he says. “Our trustees are more and more reticent to give us money to manage, as the rules have changed,” he says, regarding requirements for trustees to prove they have chosen the best possible portfolio manager for assets administered.

In addition, litigation alleging negligence can prove increasingly costly for private banks with trust assets. “As a bank-owned trust company, you end up with a massive target on your back,” says Mr Whelan. “Clients make claims because they know banks carry a lot more insurance than independent players.”

Running a network of international offices also led to an unsustainable cost base, difficult to cover by any fee income.

Instead of spreading Investec’s tentacles further into this unpredictable business line, Mr Whelan has decided to retrench into two markets – Investec’s home turf of South Africa, where the bank is the leading brand, even if the country is struggling economically of late, and the UK where he sees significant growth prospects.

“We are growing out of an emerging market and the UK is an important territory in our global portfolio of businesses,” he says.

Assets managed for UK private clients breached the £30bn (€37bn) mark, following acquisitions of boutique wealth houses Williams de Broë in December 2011 and Rensburg Sheppards in June 2010, in addition to organic growth. This has involved regional penetration in the UK, with 15 locations including Birmingham, Leeds, Manchester, Liverpool, Edinburgh, Glasgow and Belfast. These are not just token presences – the Edinburgh office alone houses 60 staff. Key competitors in the UK are Coutts at the higher end, but also the retail banks, lower down the scale.

“We can compete against the high street names, though we can provide much better service than them,” he says. “They are struggling with their branch networks and digital offerings.”

As in the South African home market, Investec’s UK business targets professionals working predominantly in law, accounting and private equity. “We typically target trainee accountants, as one day they will become management accountants and then probably directors of another business,” admits Mr Whelan. “If they like us, they will then be more likely to make investments and also pass business to us on the corporate side.”

While UK-based institutions are wrestling with the aftermath of the Retail Distribution Review regulations, which have outlawed commissions, and looking to re-invent themselves in a post-crisis playing field, foreign entrants such as Investec seem more optimistic about the future of the business.

“Our brand is clean, untainted by scandals in the UK,” says Mr Whelan, referring to issues related to Libor manipulation which have scarred the banking industry. “The one problem we have in London is that although people have heard of Investec, they are not really sure about what we do. This is an opportunity for us to grow our business. We are a new, fresh player, with real service standards.”

Lending is a particular area where Investec hopes to carve a niche, particularly to private equity professionals. “They enjoy a good salary and may receive a big bonus in one year. We can factor in these variables and be more flexible than the high street banks in the way we lend to them.”

Although the group has a clear focus within private banking, expansion into other markets is still on the cards. “Europe is not on the radar screen yet, but it will come,” believes Mr Whelan. Incursion into other African countries is however much less likely.

“As a rule, international banks don’t go into Africa, with a few exceptions in Congo, Nigeria and Ghana,” says Mr Whelan. “It’s not worth it for the assets they pick up, weighed against the possible compromise to the brand in the event of managing laundered money.”