All articles by PBI Editorial
PBI Editorial
Back to the future
Clients evidently feel safe in the thought that if they suffer in financial turmoil, their bank does too. Wegelin and Hoare both declare that employing unlimited liability for their partners, an approach which most other banks discarded long ago, imposes a type of discipline which is impossible with a modern integrated bank. The vast leverage and speculative trading which have devastated the balance-sheets of a number of their big bank rivals is virtually impossible if partners carefully monitor each others positions and strategies, it is contended.It is no surprise that the two are among the private banking industrys oldest members: established in 1741, Wegelin is Switzerlands oldest private bank while Hoare dates back to 1672 and remains wholly owned by the Hoare family Its notable clients over the years include diarist Samuel Pepys and Lord Byron. As clients flee several big banks perceived as potentially being destabilising by huge subprime exposures, money has been flooding into medium-sized and smaller banks, an influx these two have been enjoying as well. Hoare has taken in more deposits in the first three months of 2008 than in its first three centuries amid client nervousness sparked by the global credit crisis. Alexander Hoare, its chief executive says that the Hoare balance-sheet went up by hundreds of millions of pounds in its financial year to 31 March. These inflows reflected the flight to quality now underway in financial markets, he says, declaring, Financial markets play between fear and greed
Trying times could challenge Swiss status quo
But with reputational blows and weaker equity markets already taking their toll, market leaders UBS and Credit Suisse may come to regard last years performance as the apex of their asset gathering activities, at least for the current economic cycle. For example, UBS, which had CHF2.13 trillion ($2 trillion) in assets within its wealth management division at end-2007, has reported that this figure fell to CHF1.8 trillion by the end of Q1 2008.
Private client pie hits £345 billion
Just over half of UK private client assets are managed by 10 investment managers, including Coutts, UBS, Barclays and Rathbones, amid significant progress in offering more professional investment advice, according to new estimates.The absolute leader in discretionary account management is Coutts, with £14.6 billion ($29.4 billion) of assets under management in this category Next is UBS, which has impressively built up its UK wealth position where it has £13.3 billion of discretionary business (see table).For the advisory business, the leader with a dominating position is Barclays and its private client broker Gerrard, with £23.9 billion Brewin Dolphin is the next-ranked with £11.1 billion.This data has been compiled by Katrina Preston, analyst in London for Landesbanki Securities, an arm of the Iceland banking group.Discretionary client accounts which are traditionally more profitable for banks saw a 26 percent increase in terms of assets under management in the year to October 2007
Citi takes on the brokers
The key aim is to make its brokers more like professional private banking advisers and to quell feuding between the two sides. Citigroup Global Wealth Management, rolling out a new management line-up in North America that puts advisers at its Smith Barney brokerage and the banks private bankers under one roof, is trying to create seamless teams made up of private bankers and brokers.That will mean trying to wean brokers away from an entrenched stock jockey mentality and instead convert them into advisers able to advise on a wide range of requirements for the high net worth The reorganisation is also aimed at snuffing out the feuding that can break out between brokers and private bankers, with both sides keen to keep their clients away from the other.The experiment will be watched closely on Wall Street, where a number of big firms such as Morgan Stanley and Merrill Lynch have similarly been moving to upgrade the quality of financial advice offered by their brokerage work forces.A number of big banks are looking for synergies between broking and classic private banking
Twenty, not out
Here, he takes a look back over the eventful past two decades. JK Galbraith in The Age of Uncertainty, published in 1977, wrote: Of all the classes, the rich are the most noticed and the least studied. The same sentiment could have applied just as well to the financial institutions that served the rich.For the fact was that although a myriad of banks, stockbrokers, private client investment management firms and trust companies existed to serve the needs of the rich in 1977, and had done for a number of years, they hardly constituted part of the financial mainstream
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BoNYM shows its class
The Bank of New York Mellon Corporation known commonly by the rather awkward acronym of BoNYM is far less clumsy than its sobriquet. It ranks as the worlds largest provider of securities services for institutional investors, overseeing more than $20 trillion of assets, dethroning JPMorgan Chase for the top spot. It is also a top-15 global asset manager and top-ten US asset manager, with more than $1 trillion of client assets.
The US catches the bug
Charles Davis reports.The big US banks have caught on to the structured products boom and while these products remain but a fraction of their overall business, sales are expected to soar as the powerful brokerdealer firms jump on board.Last year, American investors purchased $64.3 billion in structured products, up 32 percent from $48.7 billion in 2005, and issuance is expected to hit $100 billion in the US this year, according to the Structured Products Association (SPA) in New York.
Challenging times for private banking
The escalating cost of onshore expansion, economic downturn and, most serious of all, the repercussions of the US subprime credit crisis will be major tests for players, large and small.The coming year will prove a challenging one for private banks, some of which are deeply embroiled in the US subprime crisis and which put their clients into loss-making collateralised debt obligations, according to Daniel Truchi, chief executive of SG Private Banking.At worst, some private banks that have taken major hits from the subprime debacle could see a flight to quality wave of defections among their clients, contends the French private banker, who has a reputation of advanced thinking on the industry
So who are the wealth winners?
If the credit crisis does not trigger any more surprises, then these players should have a real head start on their rivals.The wealth management groups poised to be active consolidators, after successfully attracting client inflows throughout the crisis, as well as making acquisitions in the last few weeks of turmoil, are already becoming apparent.
Wealth sector assets grow by a tenth
The wealth management industry in the UK grew investment assets under management by 10 percent last year to a total of £402 billion ($747 billion), regarded as a respectable performance after financial markets began to erode in the latter part of 2007 as the credit crisis struck home. While this represented a slackening of the pace from the 18 percent assets growth recorded in the boom year of 2006, the private clients advisory industry still managed to generate higher aggregate revenue of £3.9 billion, up 16 percent, according to new data by UK researchers Compeer Pre-tax profits of the 155 wealth firms it tracks grew to £1 billion, up 28 percent.