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September 27, 2010updated 05 Jun 2017 11:38am

Client-poaching heats up competition

Spain is going through one of the toughest economic crisis in Europe, but private bankers believe the time is right to expand their businesses in the country Rodrigo Amaral finds bankers see now as a unique moment to grow by wooing their rivals clients and capturing the private wealth leaving Spains unlisted savings banks. The global financial crisis, the argument goes, has created an army of unhappy, wealthy clients who have grown disappointed with the services provided by their banks

By Rodrigo Amaral

Spain is going through one of the toughest economic crisis in Europe, but private bankers believe the time is right to expand their businesses in the country. Rodrigo Amaral finds bankers see now as a unique moment to grow by wooing their rivals’ clients and capturing the private wealth leaving Spain’s unlisted savings banks.


Ramon de la Riva, Banco SabadellThe global financial crisis, the argument goes, has created an army of unhappy, wealthy clients who have grown disappointed with the services provided by their banks.

They are more suspicious and demanding than ever, bankers say. But they are also ready to be wooed by private banking departments capable of making a consistent and reassuring pitch.

Spanish banks dominate the wealth market making it traditionally difficult for global players to get a strong foothold.


Spanish market worth €325bn

“So far, 2010 has been a very good year,” says Luis Ojeda, the head of Deutsche Bank’s Private Wealth Management (PWM) unit in Spain. “Our revenues have grown by almost 14%. With the crisis, wealth is not growing, but we are expanding our market share by getting business from our rivals.”

A similar case is made by Ramon de la Riva, head of private banking at Banco Sabadell, a mid-cap bank: “We’ve been poaching clients from our rivals in a way that we had never been able to do before.”

Spanish private banking is a fiercely competitive market dominated by large retail banks that have been performing particularly well during the global crisis. Research firm DBK estimates the Spanish private wealth market at €325bn ($435bn). Universal banks own a 69% share of the market, and that slice has been growing in recent years.

The private banking arms of the three largest – Santander, BBVA and La Caixa – manage around €135bn in assets under management. A further €31bn are trusted to Banif, a standalone outfit that is part of the Santander group.


Mid-tier banks smell blood

Plenty of private banking operations have been harmed by the crisis. Banif and Santander Banca Privada have had to compensate clients whose assets had been invested in products linked to the Madoff scam, while Bankinter has seen its private banking unit suffer with the repercussions of the sale of Lehman Brothers-linked products to their clients.

UBS was reported last year to have trimmed its private banking operations in Spain, and other Swiss firms, like Rothschild and Sarasin, have closed their Spanish offices. Up and coming, mid-tier private banking units like PWM and Sabadell Banca Privada have smelled blood and are working hard to take advantage of it.

“Private banking is going through a unique moment in Spain,” says de la Riva. “There is business to be earned, and our big rivals are doing particularly well. This is the time to draw new clients and to make the business grow.”


Cajas provide new private wealth clients

Plenty of private banking clients are migrating away from Spain’s unlisted savings banks, the cajas, which are going through a complicated consolidation process after serious doubts were raised about the financial health of a number of them.

“Some of our rivals are distracted by other worries, like merger processes and other such things,” says de la Riva.

Ojeda, for his part, says although Spain is not a strategic market in terms of potential for growth, it offers attractive prospects at the moment.

“Spain is a mature market like other European countries. But there is a fantastic opportunity to expand here via the acquisition of market share,” he says.


Clients don’t just want product pitches

In order to gain market share, Ojeda says it is important to learn from the mistakes committed by the industry in the past and to provide better services to more demanding and risk-averse clients.

“It became clear that private banking clients were offered little financial planning,” he says. “Often they made investments without a proper evaluation of risk profiles and investment maturities. In recent months, however, planning has gained a new relevance.”

De la Riva says clients now expect a much closer relationship with their banks.

“They don’t want that their relationship with their private bankers to be restricted to the moment when a product sale is pitched,” he says. “Clients are demanding information and constant monitoring.”

Top 10 Spanish private banks: Assets under management, end-2009


Focusing on HNW

Spanish banks have also been focusing on clients with a higher net worth than usual. This is a significant change in a market where the line between private and affluent clients has often been blurred.

Banco Madrid, a standalone private banking firm that belonged to Kutxa, a savings bank, used to advertise that its services could be offered to anyone with as little as €50,000 of investable assets. The unit was sold in March to Banca Privada d’Andorra, which is said to be restructuring the business.

Serving the lower bracket of the market, always a challenge for private banks, is an even more difficult as deposit-hungry banks have been offering to pay rates of up to 4.5% a year for large amounts of money kept in savings accounts.


Profits down 80% compared to 2007

A mix of risk aversion and the economic crisis has certainly dented the profitability of the sector. According to newspaper Expansión, the combined profits of Spain’s main private banks were down 80% to the end of 2009 compared with two years ago.

De la Riva’s department manages a little more than €20.3bn, spread among two units. Sabadell Banca Privada is integrated into Banco Sabadell’s 1,200 retail branches and actively makes use of the network to reach new clients. Private bankers visit prospective clients accompanied with the managers of the branches where they already have business in.

“It is impressive how much extra information a bank manager can contribute in a discussion with a client,” de la Riva says.


Sabadell snapshot

Sabadell’s other private banking unit is Banco Urquijo, a 140-year-old standalone private bank that was acquired from KBC in 2007. Urquijo has 14 offices under its own brand in Spain and operates independently from Sabadell Banca Privada.

Although Urquijo tends to work with clients with a higher net worth, de la Riva says that the two units, which have around 100 bankers each, compete for the same clients.

“Competition is a good thing in this business,” he says.

Deutsche Bank PWM, which focuses on clients with at least $2m in investable assets, provides an example of another kind of entity working in the Spanish market: subsidiaries of large international banks. Ojeda claims Deutsche Bank has become the top-ranking foreign private banking operation in Spain thanks to the financial crisis.

The German bank currently manages €8bn of private banking assets in the country, €3bn of which belong to PWM clients. The crisis has not prevented other foreign firms spotting opportunities to grow in Spain. In addition to Banda Privada d’Andorra, Citi, JP Morgan, Banco Espirito Santo and others have been recently reported to be hiring private bankers and expanding their operations in the country.


Foreign players struggle in Spanish league

Ojeda warns that even during the good times, Spanish private banking was a tough business for foreign players.

“Several Swiss, British and other European players have left the Spanish market in the past few years,” he says. “This is classic situation in Spain. In the past 25 years many small companies have tried to get into Spain, but have failed. As in other parts of Europe, you need some volume of business and to make a certain level of investments to succeed in private banking here.”

Competition could become even fiercer in the future. Several local savings banks, including Unmin and Caixa Terrassa y Caixa Manlleu, have restructured this year and announced that private banking is one of the areas they are likely to give priority in the future.

When these new, healthier reincarnations are up and running, competition is only likely to escalate. Client-poaching is set to stay.


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