Asian private banks target the next generation of ultra-rich people
The optimistic nature of experienced Asian private bankers has been difficult to defeat.
This optimism has resisted the implosion of BSI Bank (BSI) in Singapore (the private bank was found guilty of money laundering crimes) and the problem that Asia is still the region with the lowest private bank profit margins in the world (low profit margins have led to some banks Withdrew from Asia).
In fact, ABN Amro recently sold part of its business to LGT Bank, which has benefited some competitors. Pessimistic analysts believe that Asia is one of the most crowded banking markets in the world, but there is no doubt that it has also gathered the wealth of a new generation of Asian super-rich people who may need help from private banks in the future. Today, there is one less competitor in this market.
"When others exit, opportunities arise," said David Shick, head of private banking at Julius Baer in Greater China. "The pressure on costs is reduced." Qi Zhixiong is his Asian private in Singapore and Hong Kong. One of the more introverted people in the banking industry. He admitted that profit margins have been compressed "quite severely" and that "competition is getting fiercer year by year." But he also said that these competitive factors also mean that, given the “volume and scale of participation in the market,” Western banks have the conditions to flourish.
According to the latest ranking of "Asian Private Banker", Baosheng has an asset under management (AUM) of US$75 billion in the Asia-Pacific region, making it the fifth largest private bank in the region.
Two other Swiss banks, UBS and Credit Suisse, also believe that scale will be an advantage. They are the largest and third largest wealth management institutions in Asia, respectively. When Credit Suisse lowered its overall profit target for the Asia-Pacific region on an investor day not long ago, the original target of the Asia-Pacific wealth management business was not adjusted.
As the world's largest wealth management institution, UBS is actively recruiting troops-especially in China. In China, UBS has vowed to double the total number of employees between 2016 and 2021.
"Everything we have seen in Asia shows that the strategy we are pushing is paying off and accelerating," Credit Suisse CEO Tidjane Thiam said on an investor day not long ago. He is explaining why he still believes that the pre-tax profit of Credit Suisse's Asia Pacific wealth management business will more than double from 2015 to 2018.
Credit Suisse’s strategy is based on the belief that the explosive growth of wealth in Asia in the next few years will bring good news to private banks, especially large private banks that can connect their customers with global networks and investment banking services.
A similar view exists in large American banks with smaller operations in Asia. Executives of these banks insist that they can also find opportunities in crowded markets. Wall Street giants cannot rely on the brand recognition that helped them win business in Europe and the United States - a banker recalled his meeting with a Chinese billionaire who had never heard of Goldman Sachs - but they had another A big selling point.
Andrew Cohen, head of international private banking at JPMorgan, said the balance sheet is "critical" for the bank's Asian business. He went on to say that the fastest growing part comes from helping customers achieve "asset monetization" or dealing with new "situational needs" in a rapidly changing market environment. JPMorgan Chase is the ninth largest investment bank in Asia, with assets under management of US$65 billion.
Citi also uses its large balance sheet to support its loans to private banks in Asia. Citi is the second largest private bank in Asia after UBS.
Asian banks may not have the same global scale, but executives at UOB and Bank of Singapore say their much smaller businesses have local advantages.
“Our Asian business is very large, so we know Asian businessmen very well,” said Yeng Fang Ong, head of private banking at UOB. UOB's asset management scale is approximately S$30 billion. "Our bank was founded 80 years ago. Many customers — the first generation of customers — have been with us since then. Our bank and customers have grown together.”
Bahren Shaari, chief executive of the Bank of Singapore, said that a better understanding of the market would also help Asian banks avoid costly compliance errors. Due to the huge differences in the markets of various countries, Asia has become a compliance problem for banks that are expected to understand the source of their clients' funds.
An annual survey conducted by Ernst & Young (EY) in 2016 found that 39% of companies in Asia stated that compliance is the main focus of their strategic budgets, much higher than the highest priority in Europe and North America. The proportion of companies-11% and 9% respectively.
"If you don't see things in life, if you haven't known your customers for many years...you (how is it possible) know who you can trust and what do you need to check further?" Shari said. "You need people here, not only the people who have been sent here, but also the people who have established their careers here. Then they will understand the dynamics of Indonesia or China."
Yeng Fang Ong emphasized that European banks are not her "direct competitors" because it is common for customers to have business relationships with European banks and Asian banks. Ernst & Young found that the Asia-Pacific region is the region with the highest percentage of clients establishing relationships with more than five wealth management companies.
15% of private banking customers in Asia Pacific deal with more than five banks, and 29% of ultra-high net worth (that is, the richest) customers in Asia Pacific have relationships with more than five banks.
But this also has a negative impact on profitability. Although the tendency of Asian clients to cooperate with several institutions ensures that each institution can get a share of the pie, this tendency has also become one of the reasons for such low profit margins of private banks in the Asian market.
According to research conducted by the Boston Consulting Group (BCG), the pre-tax profit of Asia-Pacific private banks is 0.21% of the scale of asset management, while the European counterparts are 0.25% to 0.26%.
This means that the pre-tax profit generated in Asia for every 100 million US dollars of client funds is US$210,000, while in Europe it is US$250,000 to US$260,000. No wonder Ernst & Young believes that the time is ripe for further consolidation in the Asian private banking industry.
Qi Zhixiong of Baosheng said that ABN AMRO’s withdrawal from the Asian private banking market is “just the beginning”. He predicts that three or four competitors will withdraw in the next five years.
Qi Zhixiong believes that once the market is consolidated, the trend regarding the profitability of the industry will change. Until then, Asian private bankers will have to maintain confidence. Fortunately, this is what they are good at.