WHICH FIRM WOULD not want to be in private banking in Asia? About one-third of the world’s millionaires live in the region, and their wealth is growing fast. According to the Merrill Lynch/Capgemini World Wealth Report, wealth in the region is growing at an annual rate of 8.5%, second only to the Middle East.
Many of these assets have yet to work their way into private banks. One private bank head estimates that only about 17% of high-net-worth individuals in the region have private banking relationships. With so much untapped wealth, and such growth forecast, private banks in the region can almost grow assets with their eyes closed. Indeed, assets under management in private banks in Asia Pacific are expected to grow at an annual rate of almost 30% over the next three years according to PricewaterhouseCoopers’ 2007 survey of more than 250 senior executives in the global private banking industry.
Revenues are expected to grow at 26% a year between 2008 and 2010, up from 14% in the 2006 to 2008 period. It’s little wonder then that an increasing number of international banks have established private banking franchises in Hong Kong or Singapore, or that local banks have been expanding their private banking propositions.
But Asia is not immune to the deteriorating economic environment in the US. Its economies may be less reliant on the US than they were 10 years ago but the impact of the US recession is not going unnoticed. Asia’s investors are nervous. Stock markets in Asia, which are more volatile than those in the US, are being hit as increasing bad news emerges from Wall Street, and the profits of Asian businesses that rely on exports to the US are being affected.
This will not be sufficient to stop the growth of wealth in the region but private banking clients will be keeping a closer eye on their investments, and the banks with which they share relationships. Margins will be adversely affected. There might well be enough wealth to go around but, if costs increase, those banks that have overstretched themselves because private banking seemed so appealing two years ago will be hit.
The cost of competition
"Six years ago you could count on two hands the private banks in Asia," says a Singapore-based private banker. "The local banks were not contenders, having only commercial or retail banking capabilities, and only those European banks with historical ties to the region, and a couple of the US banks, were here seriously competing."
It is a far cry from the situation now. In Singapore alone there are 40 private banks, according to Calamander Group, an investment advisory firm based in the city state.
As wealth in Asia increased, foreign private banks realized that flying in a banker from Europe was no longer enough. Having a booking office in Singapore to tap into southeast Asia and one in Hong Kong to access Greater China has become the minimum requirement to keep up with the demand from high-net-worth individuals.
Keeping up with the growth in wealth has put costs under pressure. There are not enough experienced relationship managers in Asia to go around. A quarter of private banks estimate that more than 20% of their client relationship managers were approached by competitors in 2007.
This has forced the private banks to look elsewhere for talent. Ravi Raju, head of Deutsche Bank’s private wealth management business in Asia-Pacific, says his firm has been employing staff from outside the private banking sector. "We think this is more of an issue for private banks that are running a much more commoditized model. For us this has not been so much of a problem. The sorts of people we are looking for are quite senior and specialized. For example, people with 10 to 15 years of broad experience – not only in wealth management but also sales and trading/investment banking, people who understand the business of entrepreneurial clients in order to serve the bank’s growing client base of entrepreneurs, business leaders and wealthy families in the region."
Other banks, such as Citi, have been recruiting from law firms and accountants. Being able to add relationship managers to a platform has enabled some firms to grow their headcount by an annual 40% to 50%, says Tjun Tang, managing director at Boston Consulting Group Hong Kong.
That said, there are challenges in educating staff that do not already have a private banking background. "With the shortage of staff, it is a necessity, but it is not ideal," says a private bank chief executive. "We have employed from commercial banks, and the mentality is quite different. It can be hard to get them to fit in, and we’ve had to let several go."
Looking to alternative areas for recruitment is one way of keeping costs down. Staffing salaries have doubled over the past three years and the average salary of a relationship manager in Asia is estimated to be about $200,000 plus bonuses and benefits. "It has become ridiculous," says a head of human resources in Singapore. "I have people turn up for interviews and when they tell me what salary they want, I’m incredulous. They run the risk of pricing themselves out of the market altogether."
 |
"Asian clients are looking for an Asian bank, and we have become a pan-Asia private bank"
Amy Yip, DBS |
Such costs can be borne if a bank is adding a handful of bankers each year. However, most private banks in Asia have more than doubled their headcounts over the past three years. UBS, the biggest wealth manager in Asia, has doubled its staff in the Asia Pacific region since 2005 to more than 3,000. Some private banks are in a position to attract staff at a lower cost than their competitors. The universal global banks with long-term reputations in Asia argue that relationship managers are attracted to them because of the breadth of products and services that they can use. Indeed remuneration packages, which tend to be based on short-term goals, are not the main reason relationship managers choose to change firm. It is the relationships with management, corporate ethos and strategy, and training that keep them from looking elsewhere.