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.