Private banking: Who stays in Asia, wins in Asia
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Private banking: Who stays in Asia, wins in Asia

For many private banks that set up in Asia in the last decade, the cost of doing business kept them locked out of the vast expansion of wealth in the region; those that didn’t leave are settling into a more mature industry, but they are a long way from being able to relax.


While China’s economy may be slowing down, wealth in the region is only heading upwards. By 2025, Asia’s millionaires are expected to own $42 trillion in assets. Such predictions were the reason private banks piled into Hong Kong and Singapore through the 2000s, opening offices where they didn’t have them, shipping bankers out of Europe and the US, and hiring in droves. 

How could they not make money, given how fast wealth was growing in the region? The number of millionaires across Asia has almost doubled since 2010, according to Capgemini’s World Wealth Report. 

There are now more than 6.2 million millionaires holding $21.6 trillion in assets in Asia – more in overall number and assets than North America. At the billionaire level, the pace of growth is even higher – 55 billionaires were created last year in China, compared with 53 in the US. 

But the cash cow that was going to be Asia private banking just didn’t emerge. Cost-to-income ratios were high; hiring was costly, with managers moving regularly and taking assets with them; and many banks found their domestic models did not export well. 

“Many were seeking, or needed, short-term gains, but building a private banking business in Asia was a long-term proposition,” says Pathik Gupta, who heads the Asia office of consultancy Scorpio Partnership. 


And the result was that between 2009 and 2016, many banks exited the region. Barclays sold its business to OCBC, as had ING before. Société Générale sold its Asia private banking businesses to DBS. DBS also picked up ANZ Asia private bank. 

ABN Amro passed its business to LGT. RBS’s Coutts sold its business to UBP, which is looking for further acquisitions. Falcon Private Bank sold its Hong Kong operations to EFC Private Bank.

There are others still rumoured to be on the block – including RBC’s wealth management business in the region. 

It has left some private bankers in the region frustrated. 

“We’ve seen prominent names in the industry vowing a commitment to wealth management in Asia, investing substantially, only to sell that business in less than a couple of years,” says one. 

“We’ve seen those wanting to catch up going on a hiring frenzy with inflated packages, which only served to drive their costs through the roof and then having to fire half of them. It’s been a boom-and-bust scenario that is extremely disruptive to the industry and to clients.”

But $42 trillion is a lot of money, and some of the banks that pulled out are now considering re-entering. The environment may be even more challenging than when they left; the cost pressures are still there. Those who remained committed, however, are forging ahead. 

Cashing out

There has been little change in market share among the top 10 private banks in Asia Pacific by assets since 2012. UBS Wealth Management is by far the largest, with $357 billion in assets under management in the region. Citi and Credit Suisse are second and third respectively, although Credit Suisse’s rate of growth has well outpaced that of Citi, according to data from Asian Private Banker

All three private banks point to having expertise in investment banking or corporate banking as a reason for their success. First- and second-generation entrepreneurs make up the largest proportion of wealth in Asia, and 80% of their wealth is tied up in business assets. 


Benjamin Cavalli,
Credit Suisse

It means that wealth is only producing revenues once a business owner cashes out, says Benjamin Cavalli, head of private banking south Asia at Credit Suisse. 

“You can wait till the monetization occurs, but ideally you want to play a role in that monetization. That’s why an integrated model of investment banking and wealth management is the only winning model.” 

Credit Suisse ranks in the top three in advisory and underwriting league tables in the region, and ranks top in Asia in Euromoney’s private banking survey this year.

This need for investment banking has seen both Morgan Stanley and Goldman Sachs succeed in growing assets – although their private wealth businesses are seen as service arms to investment banking clients rather than focused private wealth managers. 

Data from Asian Private Banker shows Morgan Stanley to have grown private wealth management assets by 11.8% from 2012 to the end of 2017 – to about $102 billion. Goldman Sachs grew its private wealth business’s AuM by almost 18% to $87 billion. 

Steven Lo, region head of Asia Pacific at Citi Private Bank, points out that a balanced business is needed to be able to weather market downturns when capital markets activity falls. Last year, while many banks in the market had flat or low single digit revenues, Lo says his grew by double digits. 

“That was despite a challenging second half of the year.” 

Lo says it is in part because of a shift in the business mix. 

“In 2011, the majority of our revenues came from capital markets, now our investment revenues are about 50% discretionary mandates and 50% capital markets.” 

That success is enabling Citi to expand. 

Indeed, across the board bankers report that there has been a shift towards discretionary mandates – particularly for those who are now inheriting and don’t have the time to manage their own money, says Edmund Koh, president of UBS Apac. 

Driven by diversity

There is a definite sense that Asian wealth management is maturing – moving away from being driven by transactions and self-directed investments to one where clients want a broader array of products, services and advice. 

“Clients want international diversity for one, and new investment ideas like private equity. They’re also very interested in sustainable finance – more so than we see in other parts of world,” says Koh. 

At DBS, Sim S Lim, head of DBS consumer banking and wealth management, mentions that legacy planning is also in demand. 

Edmund Koh UBS-160x186
Edmund Koh,
UBS Apac

While holistic wealth management is arriving, Koh says it will be five to 10 years before China embraces holistic wealth management and not just mutual fund sales. That will be driven by wealth transfer.  “The Chinese authorities are waking up to the inheritance tax that Japan has – about 55% – so people are wanting advice on inheritance,” he says.

Asia is home to 814 billionaires, representing 38% of the global billionaire class, who are expected to pass on $3.4 trillion over the next 20 years. It is one reason given for the increase in family offices across the region. According to The Economist, in the past 10 years the number of Asia-based family offices has climbed from around 50 to somewhere between 500 and 1,000.

To capture that wealth transfer and to grow assets organically across the region, several banks are going onshore beyond Singapore and Hong Kong. A step that Scorpio’s Gupta says has been late in coming. 

Cavalli says: “The Philippines is beginning [Credit Suisse opened a rep office last year], Thailand, India, Japan, Australia – with the latter two delivering the fastest growth among onshore markets.”

The proportion of onshore assets across the region has gone from 30% to 40% in the last few years, he says, although it doesn’t require building a full onshore banking platform in every market. Going onshore means finding the right model – and that may not be the one that works elsewhere. 

Australia is a case in point for Credit Suisse, where it tops the rankings in this year’s survey

“Ten years ago, it was a painful start in Australia to introduce an advisory model in a brokerage-dominated market,” says Cavalli. “We saw international players come in and just copy the traditional Australian brokerage model, but it didn’t work, so our model paid off.”

The majority of wealth in the region, however, resides in North Asia – about 70%, says Francois Monnet, head of private banking north Asia at Credit Suisse, and so the bank is looking at long-term investments onshore in China.


Francois Monnet,
Credit Suisse

“The normalization of Chinese investors’ expectations of investment returns over the last few years and China’s opening up to foreign ownership has provided a different environment and a more level playing field for global competitors like us,” he says. 

At the moment Credit Suisse has a three-pronged onshore approach in China – a branch in Shanghai, a partnership with ICBC in asset management and a securities joint venture, Credit Suisse Founder Securities. 

In China, UBS operates under a full licence in Beijing and is hoping to get a licence in Shanghai this year. 

However, attracting Chinese clients within China is challenging. The domestic players have been slowly maturing their own private banking product offerings. 

According to Asian Private Banker data, AuM at China’s private banks have risen by an average 31% a year since 2012, and China Merchants Bank (CMB) and ICBC will soon overtake UBS and Citigroup in AuM in Asia. 

CMB’s vice-president, Jianjun Liu, says it will be hard for foreign banks to make serious headway in the country: “Clients may have two or three banks, but they will rely on domestic banks. They just trust them more.”

Citi’s Lo also makes the point that, when it comes to global players, US banks may have an advantage. Chinese millionaires, for example, are the largest segment of the market with China being home to Rmb185 trillion ($27 trillion) in personal fortunes, according to a report from CMB and Bain Consulting, and, while they are going global, they are setting their sights on the US in particular. 


Jianjun Liu, China Merchants Bank

“Many of our Chinese clients aspire to live on the west coast of the US or perhaps on the east coast in cities like New York or Boston,” says Lo. 

“If their businesses are tech-based, for example, there is a natural affinity to have some link to Silicon Valley, and many of their children go to school in the US (or want to), with some even wanting to stay to live and work there after their studies.” 

China is the second-largest source of offshore wealth in the US. By comparison, Chinese wealth is not among the top three sources in Switzerland. 

Outside China, Koh says there are also opportunities that UBS has yet to explore, such as Vietnam and Indonesia. The challenge will be that those markets lack experienced relationship managers, however. UBS is also looking to expand in Japan, collaborating with local brands.

“There are new opportunities,” says Koh. “Six to eight years ago, Japan and Taiwan wouldn’t have been profitable. Now they are very strong businesses.” 

In Japan in particular, Koh says the high inheritance tax rate and low-to-negative interest rates have led individuals to seek wealth management advice. 

“Today, 10% of our books in Japan are in discretionary mandates; we only began offering them two years ago.” 


Steven Lo,
Citi Private Bank

He says the Swiss brand helps, as does scale: “We’ve also been patient in these domestic markets, knowing they need time to understand wealth management is more than just investments.”

Indeed, while there is much discussion about the wealth in China, it is often overlooked that Japan has more wealth than China – almost two million more high net-worth individuals, holding $1.3 trillion more in assets than in China, according to Capgemini’s Asia-Pacific Wealth Report 2018. 

Domestic expansion

But while the largest three private banks in Asia may be enjoying the fruits of their commitments, the Japanese, Chinese and Asian domestic banks have their own expansion plans. CMB, for example, is seeking to serve wealthy Chinese and their families across the world – expanding in Hong Kong and Singapore – the largest two offshore centres for Chinese wealth. 

CMB has three institutions in Hong Kong: Wing Lung Bank, which has a long history as a commercial bank, its own private wealth management branch and CMB International, an investment banking subsidiary. Its Singapore centre, launched in 2017, provides comprehensive financial solutions such as travel planning and non-financial business, says Liu. The combined businesses manage about Rmb2.2 trillion. 

Chinese banks’ plans to serve their clients offshore are still at an early stage, says Scorpio’s Gupta, but he expects their presence to grow over the decade ahead and provide some competition to the US and European banks. 

Gupta also points to Japanese banks as likely entrants to the offshore centres. 

“The Japanese banks have a lot of money and need a place to invest it,” he says. “Whether they will take the plunge with the high business build-out costs remains to be seen, but they are certainly looking at how they can grow, and expansion across Asia makes sense.” 

Sim S Lim, DBS

Banks such as DBS and Bank of Singapore are also continuing their expansion. DBS’s Lim says that outside the main markets of Singapore, Indonesia, Hong Kong and mainland China, the bank also sees opportunities in other parts of southeast Asia, as well as the Middle East and London, as interest in Asia continues to grow.  Last year, the bank expanded in Dubai and London, including hiring Rudiger von Wedel, previously chief executive of the National Bank of Abu Dhabi’s wealth, Europe and Americas divisions, to run its international and non-resident Indian strategy. Both DBS and Bank of Singapore have seen high rates of growth since 2012: 18.7% and 21.2% compound annual growth respectively. 

Scorpio’s Gupta says the model of the domestic Asian banks has been shown to work: they have leveraged their retail banking franchises to the benefit of their private banking businesses, typically by ensuring that the two are overseen together. 

That avoids the risk of infighting between businesses and ensures clients stay with the bank as their wealth grows. It also enables costs to be spread across the two businesses, allowing them to invest heavily in areas like technology. 

As domestic players start to branch out regionally and globally, they will eventually eat into the global players’ client base. And as the wealth growth rate slows in the region over the next decade, Liu points out that competition is only going to increase. 

“We’ll be competing on existing volumes; it’s hard to imagine we will have the high fee growth of 10 years ago again, so it’s going to get fierce,” he says. The key he adds will be to create value and provide the most suitable products, including helping clients put risk controls in place as China faces a slowdown. 

Citi’s Lo expects the increased pressures to lead to continued consolidation. He points to the decline in the number of members of the Private Wealth Management Association in Hong Kong. 

“The shrinkage of members has taken some names out altogether as a result of sustained unprofitability,” he says. “The average cost-to-income ratio across the industry is about 70% to 80%, if not higher. A model like this is not sustainable, and with regulation increasing, you have to have the platform and the mindset to accommodate this trend. It’s not a one-time adjustment or cost, it’s a frame of mind and at the centre of how you conduct your business. It is an advantage for those with scale.”

For the private banks that left the region in the last decade, it will be far harder to return now, says Gupta. Things have become more competitive and more complicated. Regulations are stricter and poaching no longer works as only 20% of a relationship manager’s assets come with them. 

He says: “If they wanted to be part of the growing wealth, they should have stayed.”

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