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Editorial: Emerging market illusions

According to the heads of the world’s largest and most successful global private banks, the main driver of revenue growth for 2011, and for several years to come, will be rich individuals in Asia and Latin America. So adamant are they that this is where growth lies that the top-10 global private banks aim to add a combined 1,000 or so employees in those regions over the next 12 months.

It’s an obvious strategy to counteract the pressure on overall revenues. Those banks that were disgraced in the crisis are regaining clients and therefore increasing competition. Client risk appetite is still subdued so more lucrative investment products remain on the shelf. Cross-border tax issues and compliance are increasing costs.

The emerging markets, if they can still be so-called, therefore offer some relief to private bankers as they gaze into an uncertain economic future for Europe and the US. Emerging markets, particularly Asia, boast the fastest growth rate of high-net-worth individuals, and that is unlikely to change. But is this reliance on the emerging markets as a remedy for decreasing revenues simply wishful thinking on the part of the global private banks?

At the most basic level, logistics alone might prove difficult. For a start, there just are not enough good relationship managers or even potential relationship managers for the 1,000 new seats projected for emerging markets, predominantly in Asia. Chief executives might claim that they will move employees from other regions to fill gaps, or might turn to their internal corporate banks or investment banks for hires, but cultural differences, be those of region or business, will mean a lengthy period of training is required.

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