Despite the difficulties of the Dutch economy, ABN AMRO’s private banking operations posted strong results this month, almost doubling its profits. Mark Foxwell travels to Amsterdam to talk to ABN AMRO Private Banking International’s chief executive, Jeroen Rijpkema, about his strategy and ethics behind ABN AMRO becoming one of Europe’s leading private banks.
Having worked at ABN AMRO for almost 30 years it was a pleasure to have the first in depth interview with the man running the private banking activities outside the Netherlands. For someone who has shied away from the media, I was immediately impressed by one of Rijpkema’s comments.
“I believe that a private bank needs to manage a minimum of 15-20 billion in a domestic country, otherwise it’s not sustainable to invest in. One should expect bottom line results.”
It’s a bold statement to make and so is ABN’s strategy to become the leading Western European private bank with a strong growth ambition in Asia.
Having spent most of his life in the industry and now achieving positive results by repositioning the bank’s international private banking arm, Rijpkema, standing at a staggering 6ft 4, appears to have the knowledge and experience behind him to justify such a statement.
Rijpkema says the private bank, with total assets under management of EUR 167 billion, is limiting itself to a number of geographical locations, but in those countries he wants to be relevant in terms of size. He has gone to many lengths to consolidate the business and remain competitive.
“In that sense we took a number of brave and bold decisions by divesting Switzerland in 2011 and before that we already divested our activities in Latin America and Miami. We are now closing down our activities in Curacao, not because we don’t believe in those markets but because we believe in size and scale and want to be relevant for our clients.”
The private bank has also recently streamlined its operations in Guernsey, Jersey and Luxembourg by reducing headcount, in order to achieve technology based efficiencies and better alignment with the international growth strategy of newly formed ABN AMRO.
The strategy seems to have paid off. This month the private bank posted its latest results, showing a net profit of EUR 125 million in the first nine months of 2013, up 95% from last year at EUR 64 million. The increase was driven mainly by lower impairments in the international business, as well as higher management fees from increased assets under management.
Assets under Management (AuM) within private banking grew by EUR 4 billion in the first nine months of 2013 mainly as the result of market performance.
Perseverance and modesty are two traits Rijpkema believes are important in life. Both qualities have helped the chief executive drive the bank forward and streamline the business. Hung on the wall above his desk is a limited edition photo of Nelson Mandela.
“I am a big fan of his. He is not someone of great words but he moves people by his honesty, his integrity and determination to make things better for others and not just for himself.”
The picture, bought as a gift from his employees at auction, has been with Rijpkema ever since the transformation of ABN AMRO back in 2010. Today the bank is owned by the Dutch state and comprises the Dutch businesses of the former ABN AMRO and Fortis banks which were both nationalised by the Dutch government in 2008. These were then merged together in July 2010 to form the new ABN AMRO, with Rijpkema taking the reins of the international private bank formed from these two entities.
Making clear strategic choices has helped ABN AMRO to focus on becoming less of a global private banking business and more of a domestic bank in each of its core countries.
Its operations include a network of long established local private banks. Inside its core home market of the Netherlands (which accounts for just under half of assets under management), it operates as ABN AMRO MeersPierson – an iconic name in Dutch banking with roots dating back to 1720 and led by recently appointed CEO Jos terAvest. Private Banking International includes the domestic private banks Bethmann Bank in Germany and Neuflize OBC in France – founded in 1712 and 1667 respectively – as well as operations in Belgium, Luxembourg, Jersey, Guernsey, Dubai, Singapore and Hong Kong.
Rijpkema says ABN AMRO MeesPierson is currently introducing new advisory concepts in the Dutch market to stop accepting retrocession fees – ahead of the change of rules in Holland on 1 Jan 2014, required by the Netherlands Authority for the financial markets in advance MIFID II and similar to the Retail Distribution Review in the UK.
“We are also introducing similar advisory concepts in Germany at Bethmann Bank to replace retrocession fees, which will position us as a frontrunner, because there is no requirement under German law.”
The bank’s strategy is to focus on two major regions; one is the Eurozone with the Netherlands, Germany, France, Belgium, Luxembourg, and the other in Asia there’s Hong Kong, Singapore, and Dubai.
“The real focus is on these five markets in Europe, and the 3 markets in Asia. We are the third largest private bank in the Eurozone and in those 5 countries you will not see many other private banks with such a concentration of activities. We also have a very good and solid position in Asia. Within Europe Germany is an important market showing serious growth,” says Rijpkema.
He adds: “We are the fifth largest private bank in Germany, where we operate as Bethmann Bank, which is a result of the combination and integration and merger of quite a number of banks over time which formed Delbrück Bethmann Maffei and acquired LGT’s German activities in 2011,. And we have all integrated and consolidated now within Bethmann Bank.”
Speaking about the dramatically changing regulatory landscape the chief executive believes ABN AMRO Private Banking won’t struggle.
“I think that increased regulation and increased attention of society at large is a fact of life and a new reality in which we operate. I don’t think it will help us any further to mourn about it. It is something we have to live with and we can also turn it into an advantage.”
“With our focus on a limited number of markets and creating real scale, it gives competitive advantage because we have the means to invest and train the people and design systems in order to deliver the right service in line with all the requirements of our clients.”
Rijpkema says some of the other competitors might struggle: “Regulation is one of the reasons you see more and more participants looking at the size of their activities and considering whether to divest or close down sub scale activities. For us I think it is also offering opportunities, but it requires a change in mindset from all of us. Not only a change in mindset with the banks, but also change with clients. That is not always easy to explain. Certain rules or regulations might come across as administrative and bureaucratic with clients compared to the past.”
He adds: “Although they are meant to be in their interest and to protect them, for certain clients they feel it as cumbersome and hindering in their flexibility and speed. This can put bankers in awkward situations, they want to serve their clients but at the same time they are required by law to do a number of actions, which might be cumbersome for our clients.”
One way to combat the tiresome procedures for the clients is by investing in technology. Following the footsteps of many other major banks, ABN AMRO Private Banking has invested millions of pounds in IT. Rijpkema believes success with clients these days revolves around transparency, and time saving procedures.
“I think we all have to look at simplification and transparency, supported with IT systems in order to adjust to the new reality. It requires adjustment of all of us. And it can also create positive opportunities.”
The bank has just launched a new online wealth application, which is being tested in Singapore and will be rolled out in all markets in the coming months.
Online Wealth is a portfolio management tool that allows clients and their relationship managers to check every aspect of their wealth portfolios performance by viewing the details on a tablet or laptop. This saves time for the RM and allows clients to view their portfolio any place at any time.
Last month the private banking arm also launched ‘Opal’, a risk profiling solution.
Rijpkema says the application gives insight into which asset allocation product would be best given the client’s ability and willingness to take risk. Output of Opal includes, for example, what the probabilities are of achieving the client’s goals over a specified period to or how they may be put at risk in a bad market.
“It enhances the discussion between a client and the advisor by giving them additional information to make the investment choice,” says Rijpkema.ABN AMRO Private Banking is recognised for its online services and was recently ranked best website out of 50 wealth management organisations for the second year running by Myprivatebanking Research.
Rijpkema ended the interview by revealing one of his core investment strategies. “One of the things we are taking a look at again is smaller mid-cap companies. Not the big ones because we think there is still some value. We do think that the developed economies are experiencing a renaissance and we see new growth opportunities there.
He adds: “In developed economies like the US and also Europe, mid-cap companies offer new opportunities again. But at the same time, investors need to be selective and avoid the value trap of blindly stepping into low value stocks.”