Private banking: Foreign firms target US wealth clients
US wealth to reach $54 trillion by 2018; European banks expand their efforts
Asia-Pacific was, not so long ago, seen as the future for global private banks, which aggressively set up and expanded their businesses in Hong Kong and Singapore from the mid-2000s onwards. Fast forward 10 years and many have had to scale back those ambitions and refocus on what was often the toughest market for non-domestic players – the US.
The country remains the largest region of wealth in the world by far – it has more than 7.1 million millionaire households and 4,700 ultra-high-net-worth households. China on the other hand has 2.3 million millionaire households and less than 1,000 ultra-high-net households. Hong Kong is smaller still and Singapore does not rank in the top 15 countries. The forecasts for US growth also show no signs of a slowdown in the rise in wealthy households. According to the Boston Consulting Group, household private wealth in the US is expected to reach $54 trillion in 2018, up from $46 trillion in 2013. China will rank second with $40 trillion.
It has been a tough run for foreign banks in the US who struggle to compete with the domestic brands of Citi, JPMorgan and Bank of America Merrill Lynch. US tax avoidance scandals and heightened disclosure requirements have made doing business in the US even more challenging. In late November, HSBC Private Bank Switzerland was the latest to be hit. The Securities and Exchange Commission fined the Swiss-based private banking arm $12.5 million for violating federal securities laws by failing to register with the SEC before providing cross-border brokerage and investment advisory services to US clients.
But any bank wishing to increase its private banking business cannot afford to ignore the region. Credit Suisse, for example, is battling on, despite having lost money in the US in the past few years. Under new US head Phil Vasan, it is targeting niche segments such as the wealthy gay community and, more recently, the wealthy African-American community. According to its third quarter results, it had 40 fewer relationship managers in the region compared with 2013 and net new assets were declining – but total assets for wealth management clients were still more than in Asia. The bank does not disclose how many of those Americas assets are US-based however.
Deutsche Bank’s wealth management arm is also focusing on North American growth. The business has had net new money inflows over the last 11 quarters and now has offices in 16 cities. In October it added three bankers to its New York team, and in September opened a private banking office in Dallas. Earlier in the autumn the bank appointed former JPMorgan private banker Lee Hutter to lead its US Western region business.
Chip Packard, co-head of wealth management at Deutsche Bank Wealth Management Americas, says: “New capital rules and attractive earnings multiples have in part driven strong investment from most global banks into asset and wealth management. They consume less capital than the investment banking businesses and wealth management clients can benefit from the capital raising and advisory services of investment banking. When you consider those factors, it is clear why global banks are looking to build their wealth management franchises.”
|Packard and Ariyan, Deutsche. The Americas is now the second biggest contributor to assets for Deutsche’s wealth management business
Beyond Europe, the Americas is now the second biggest contributor to assets for Deutsche’s wealth management business – providing a quarter of the total €294 billion, and has grown from momentum generated in the crisis when wealthy US citizens sought to diversify their holdings away from US banks.
Hiring has been key to any expansion ambitions, says Haig Ariyan, Deutsche’s other co-head. Over the last two years, the business has hired four bankers from JPMorgan, four from Citi, three from Comerica, and one from Credit Suisse. “We’re not playing the headcount game and don’t and can’t plan to have the largest sales force. Our focus is very much at the ultra-high-net-worth end of the wealth spectrum in the US and that population is small, so targeted hiring of coverage professionals is far more effective than mass hiring,” says Ariyan. In particular the US wealth management business is targeting wealth-creating sectors such as energy, technology, real estate and healthcare.
BNP Paribas is also expanding its reach in the US. Earlier this year its co-head of the global private bank, Sofia Merlo, said that 100 wealth advisers would be added to the firm’s US bank, BancWest by the end of 2016, increasing the headcount by 50%. Santander also has plans to cash in on the US wealth growth. Earlier this year, Alvaro Morales, head of the firm’s international private banking arm, said it would expand in the northeast and look to capture business from Latin American immigrants becoming US taxpayers.
UBS has demonstrated that the US can be a market that works for non-domestic players. Under Bob McCann, UBS Wealth Management Americas has seen a turnaround since its reputational damage post crisis, and now has $1 trillion in assets under management in the region. It brought in $5 billion in net new assets in the third quarter but appears to have slowed down its US expansion with adviser headcount remaining stable.