February 5, 2010
The panel discussed choices faced by private banking ? the scale of business (advantages of being small or large), geographical allocation (go East or West), investment preferences (Swiss type versus Singapore type). Panelists also exchanged opinions on the special features of Russian HNWI and the prospects of onshore versus offshore private banking for Russian clients.
Maxim Bychkov, Senior Manager at AT Kearney: Mr Bychkov believes that the crisis has brought little changes to the client base, in both structure and geography, other than that the rich now have less wealth. Products are changing, with more focus on commodities. In the future, two models will be popular: private banks affiliated with large international banks; and smaller independent Swiss-type companies. The crisis has made a few factors more important for clients, including trust and confidentiality (here, the US-Swiss dispute can be very negative), as well as the ability to earn returns for customers. The customer base for private banks is likely to shrink, while competition will increase, but high returns mean that private banking will remain a very attractive business.
Frederik Nerbrand, Managing Director at HSBC Private Bank: Mr Nerbrand sees advantages in being a big bank with presence across many regions. While he was positive on the improved outlook of the global economy, he does not expect this to be the start of a new bull market, and thinks that clients will need to moderate their expectations. He also cited trust as a key issue going forward, and thinks that competition will intensify as private banks compete for the same pool of money.
Gregoire Bordier, Managing Partner of Bordier & Cie Private Bankers: Contrary to Mr Nerbrand, Mr Bordier sees advantages in being a small private bank, citing the 160-year history of his company as an example. He believes that with growth of emerging economies, new HNW clients will emerge, initiating strong competition between large local players and small professional private banking firms. He compared offshore and onshore private banking margins and growth, but said that key principles are the same for both, the most fundamental of which is financial privacy. Mr Bordier sees regulation as a power that reduces profitability and makes business “heavier” to establish, though the question is not about non-regulation, but rather an acceptable limit of regulatory interference.
Carlo Michienzi, co-CEO of BCM & Partners: Mr Michienzi thinks that small private banks can prosper and that there have been three distinct phases of private banking in recent years: before and after the euro’s introduction, before and after the dotcom boom, and before and after the current crisis. The stability that the euro brought increased customers’ interest in returns. While big banks have scalable businesses, they cannot tailor services in the way that small players can. A key to asset allocation is being flexible and opportunistic, as well as being present on the ground in markets such as Asia to better understand what is going on. Private clients remain as challenging as ever, wanting big returns when the market goes up and no losses when the market falls.
Jean Gueron, Managing Director at Credit Agricole Suisse: Mr Gueron sees great opportunities in China, where there will be more people earning over $30,000 in 10 years than in the US, Europe and Japan combined. There are also great opportunities in Singapore, where the government has decided to develop the country as an asset and wealth management center, with AUM of $5 bln 15 years ago and $600 bln now. Education plays a key role in recruiting talent into private banking, with Temasek, the state investment company, having created a specialized training college, actively encouraging companies to come and lecture. He added that products are becoming increasingly complex, with clients becoming more demanding, and only a few financial centers, such as Singapore, can successfully meet the diversity of these demands.
Bahren Shaari, Managing Director at ING Asia Private Bank: Mr Shaari thinks that there will be consolidation in the industry within the next five years, as the cost of doing business is increasing and there is not enough private banking expertise to go around.
During the Q&A session, the panel discussed the character of Russian HNW clients and whether they are any different to HNW clients in other countries. Russia HNWI are seen as young, aggressive and very demanding, wanting immediate services, which suggests private banks need to be very quick and nimble to serve them. There was also a discussion of the merits of offshore versus onshore banking, the main reason for Russian clients to go offshore being to avoid domestic risks and instability. Another comment was that the future of private asset management will lie in clients with $50,000-100,000 who are worried about their savings and pensions. This has the potential to be a very large market.