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Opinion

Private banking: Wonder of world wealth

Wealth management is helping bolster earnings but expanding into Asia comes at a cost.

The ray of light among the rather gloomy set of bank earnings for the second quarter was, it seems, wealth management.

Goldman Sachs’s total revenues fell 9% year on year, although revenues in its investment management business, which includes private wealth management, were up marginally on the same period last year.

At JPMorgan, revenues from the private bank were up 4% on last year, although net revenue for the firm overall was down on the second quarter last year. Citi’s total revenues were also down – 10% – while its private bank revenues were up 3%.

At Morgan Stanley, fee revenues increased, although it lost out on transactional revenues. Still, its wealth-management unit saw a decline in revenues of 4%, which looked attractive compared with a 24% decline in overall revenues.

The global banks are allocating more resources to private banking and wealth management in a bid to capture the growing wealth globally and switch to more stable fee-based revenues.

For example, David Viniar, Goldman Sachs’s CFO, reiterated the firm’s plans to expand its non-US wealth private banking business.

Asia is high on the agenda. According to Capgemini/RBC’s 2012 wealth management survey, Asia now has more high-net-worth individuals than any other region, slightly beating north America for the first time. It seems implausible for a global wealth manager not to be there, but it’s a tough call.

Wealth management is helping to boost earnings, but expanding into Asia comes at a cost. Revenues in the region have been squeezed by low interest rates, expensive employees, regulatory costs and a shift from equities to bonds by Asia’s wealthy.

Those expanding in the region face several years before their investments will yield a return. The caution among banks is evident. Bank of America Merrill Lynch put its Asian wealth management business up for sale in April and has yet to have a formal offer.

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