Following our previous Special Report: ‘Do European private banks need to be concerned about profits?‘, Richard Hartung speaks to Jyrki Rauhio, South Asia head of Citi Private Bank, on what it takes to turn a profit.

With a cost to income ratio in the 50s, in a region where the ratio is routinely between 70% and 80% or higher, Citi Private Bank in Asia stands out for its efficiency.

 Unlike some other banks, Citi Private Bank has not reduced staff or cut costs aggressively to improve its cost-income ratio.

The Private Bank has leveraged Citi’s massive franchise in Asia to attain a higher revenue, explains its South Asia head, Jyrki Rauhio. When it wants to offer a new service, the private bank can tap the Citi franchise, pick the best ideas and platforms and tailor them for its ultra high net worth (UHNW) clients in Asia.

“As we get to know our clients better, they grow in assets under management (AUM) and wealth. We do more with our clients, which drives cost-income in a positive direction,” Rauhio explains.

With a global franchise and approximately 60,000 employees in Asia building platforms, developing solutions, acquiring clients, and working with other parts of the bank, Citi can also achieve economies of scale. Relationship managers (RMs) can service clients in more locations by working with the rest of Citi, says Rauhio: “When an RM goes to see a client, the RM delivers the firm to the client. It could be M&A, escrow, credit cards, hedging, or other services. The RM has the ability to connect to the entire bank to sell a financial solution.”

Moreover, Rauhio says, Citi’s strong balance sheet enhances its ability to lend at a time when balance sheets at some banks are stressed. “That is a tremendous way to get clients’ mindshare.”

When it works with family offices, Citi can similarly provide advisory, trading, escrow, security services and more. Rather than having to incur the costs of setting up these services in each market, Citi Private Bank can leverage local offices across the region.

Citi has also been careful in how staff spend money whether for travelling or organising events. Giving clients a sports ticket is not a good use of money and playing golf with them is not what they want, says Rauhio. “They want content, knowledge, insight, experiences. You need to be very focused and be smart about everyday money usage.”

While private banking remains a high-touch business and is not easily automated, Citi has been able to adapt digital channels available for its retail bank for its private bank. Even though private banking clients on average are older, Rauhio says most of them are as digitally savvy as younger generations.

RMs can also use digital products developed by the bank to show clients how higher risks may result in a margin call, for example, or whether they are not being compensated adequately for higher leverage. “We show them cross-correlations, currency exposures, what happens if, for example, a sovereign defaults, and brings their holdings alive around the world. That is eye-opening for our clients.”

Cost-incomes tighten

“If you’re a pure-play private bank, with a few hundred clients in Asia, I can’t see them investing in the tools they need for the future,” says Rauhio.

Regulations such as data localisation and tax changes will increase costs for these pure-play private banks that as they do not maintain the infrastructure of a larger bank. “We’ll see drastic changes. Cost-income ratios will continue to be under pressure and favour those who are big scale.”

With clients now owning assets all over the world, the private banking industry needs to operate across more boarders than ever before. That plays to the advantages of larger organisations like Citi. However, Rauhio believes there is room for niche boutiques, but “they have to be very good at what they do”.