THE ART THAT graces the walls of the new offices of Credit Suisse Private Banking in Singapore is probably as valuable as the old masters in many head offices in Geneva and Zurich, but it is certainly a lot more modern. And the client meeting room looks more like a designer's studio than home to one of the world's largest and longest-established private banks. The ambience says a great deal about the new face of private banking in Asia.
"The private-banker's role has become very challenging," says Didier von Daeniken, head of Credit Suisse Private Banking for southeast Asia. "The successful private banker has to like dealing with people. Clients expect someone with a broad culture, who is conversant with a wide range of interests and not someone who just talks about financial markets."
Rico Caduff, managing director and regional head of private wealth management at Deutsche Bank, takes a similar view. "You have to look at private banking from different angles," he says, "the products we offer now compared with say five to 10 years ago are vastly different."
Deepak Sharma, head of Citigroup Private Bank in Asia-Pacific and the Middle East, agrees. "The concept of private banking has gone through dramatic change," he says. "Thirty years ago, private banking was synonymous with hiding money. Gone are those days. Private banking is about making returns, finding solutions."
Behind these new challenges and dramatic changes lies a fundamental shift in the private-banking business model. From being of peripheral importance for many wholesale and retail banking organizations, it has become a core strategic business unit. Giles Brennand, vice-president and director at Boston Consulting Group, which operates a dedicated wealth management practice, explains. "Historically, the commercial banks used to make their money on spreads from retail and corporate lending," he says. "With the huge growth of the capital markets, the interest rate spread has gradually eroded and the banks have suffered a huge loss to their main revenue generator. Now they need to make money not on the spread of interest but on the assets under management. That's incredibly important to the banks now. It's not an opportunity, it's a necessity."
According to Brennand, wealth management, to give private banking its 21st-century buzz-name, is a natural business for banks seeking to plug the leak from diminishing loan spreads with fee income from assets under management. "The other side of the huge demand for capital market borrowing is the investing side, which is why we've seen huge growth in mutual and hedge funds," he says. "In the middle of that nexus sits the private-banking market. They're the sophisticated side of the retail market and in Asia, many of the high-net-worth individuals are running the companies that are borrowing from the capital markets."
This may explain why Asia's private-banking landscape looks a lot rosier than that in other parts of the world. According to World Wealth Report 2003, prepared by Merrill Lynch and Cap Gemini Ernst & Young, the financial wealth of high-net-worth individuals globally between 2001 and 2002 grew by 3.6% compared with growth in Asia-Pacific of 10.7%, the highest of any region.
Many of the world's largest private banks are already well established in Asia yet are actively hiring as new markets open up. "Asia is one of the fastest-growing regions for UBS," says Kathryn Shih, head of wealth management, Asia Pacific. "For us, it's about trying to capitalize on as many as possible of the opportunities we see."
Clive Bannister, chief executive officer of group private banking at HSBC says: "We think there'll be a group of preferred bulge-bracket private banks. If you're a CEO and want to make an acquisition, there's a select list of investment banks that comes to mind. We think that will be the case with private banks too." Newcomers will have to adopt more aggressive strategies as they seek to gain a foothold in the world's fastest-growing private-banking market.
"SG is a late comer to private banking," says Daniel Truchi, chief executive officer of SG Private Banking (Asia Pacific), part of French bank Société Générale. "We started five years ago and we are now in the top 10 in Asia." Truchi also claims that SG is the fastest-growing private bank in Asia over recent years, with growth in income of 60%. That may come from a small base, but certainly SG has moved into the market in an aggressive way, including the acquisition of a full banking licence in Shanghai, and setting up in Asia's largest private-banking market, Japan.
"In Japan, from the Chase Trust acquisition," says Truchi," we developed a global private banking offering, including trust, investment advice and wealth management."
SG is not the only bank to drive its regional private-banking strategy through acquisitions. When Singapore-based bank DBS acquired Dao Heng Bank in Hong Kong, management saw an opportunity to use the expanded network to make a push into private banking.
"In May this year the private-banking business was transferred to wholesale from retail banking," says SF Wong, DBS's regional head of private banking. "We want to be the Asian private bank of choice. We feel bullish about the Asian private-banking market. We've registered 20% to 30% growth per annum in revenues. That's roughly in line with the market."
Citibank's Sharma says three factors drive wealthy Asian investors to seek private-banking expertise. "A major factor is the sovereign risk that exists in some countries," he says. "If you're in certain parts of Asia, and have wealth there, you may start to worry, whereas in the US or Europe, you don't even think about it." The relative immaturity of Asia's capital markets has forced rich Asians to embrace global wealth management, says Sharma.
"Going back 10 or 15 years, very few of these countries had capital markets deep enough to absorb the wealth created by these individuals. They had to start to look at global markets. The third factor is the whole concept of global migration. In Asia, the two key migrant populations of Indians and Chinese started to move globally."