Flag-bearer names in private banking like Coutts and Barclays Wealth are being eclipsed as their parent companies reign in these wealth operations, folding them within their organisations. It seems to mark the end of the standalone private bank and the often unfettered freedoms they had in the past….John Evans reports.
High-profile private banking and wealth management operations in Britain and elsewhere are rapidly being absorbed back into their parent companies, a reflection of the downsizing and cost controls now underway in the financial industry as well as the increasing burden of regulation.
The trend has become particularly marked among Britain’s big banks. Barclays Wealth and Investment Management, for a long time the top UK private banking operation, is now being tucked within a new division at the parent, called Personal and Corporate Banking
As a consequence Peter Horrell, Barclays Wealth’s chief executive, reports to Ashok Vaswani, the head of the new division rather than directly to Antony Jenkins, Barclays group chief executive.
The move echoes similar developments at both Lloyds Banking Group and Royal Bank of Scotland, both of which have folded their wealth management operations into larger divisions.
Lloyds transferred its wealth management operations into its retail bank while RBS put its private banking and wealth management operations, led by Coutts into a combined Commercial and Private Banking division as part of a process designed to reduce the number of operating divisions.
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Elsewhere, Standard Chartered Private Bank is nowadays part of a broad consumer banking group while HSBC Private Bank has also been largely absorbed into the parent institutions.
This rethink about the value of wealth management as a business line comes after private banks themselves have extensively drawn in their horns. Barclays Wealth last year began to withdraw from more than 100 markets worldwide while Coutts has similarly rationalised its global coverage.
Lloyds Private Bank has also been rationalising, including the sale of its Swiss private banking business while HSBC has withdrawn from a number of countries, and is known to be wanting to divest part of its Swiss business.
Barclays spokespeople are at pains to stress that their bank’s action does not represent an end to the Barclays Wealth brand, Britain’s second largest private bank ranked by client assets. Some media reports have talked about the rationalisation potentially leaving the Barclays private bank "withering on the vine…"
The Barclays group has just announce that it is shedding 19,000 jobs over the next three years, many in investment banking, although it was emphasised that few cuts are to be made at Barclays Wealth.
It also seems unlikely that RBS would replace the Coutts brand, one of the strongest private client banks globally. Coutts is the biggest UK private bank measured by client assets.
After the big investment in Coutts since Rory Tapner, a former UBS executive became chief executive in 2012, there had been increasing speculation that the iconic bank, famed as being an adviser to Queen Elizabeth, could be floated off in a sizeable IPO. Absorbing Coutts into RBS would seem to have scuppered such hopes, at least for the time being.
Similar trends home and abroad
Foreign banks have also been following this trend. Citi Private Bank is lodged with the US group’s investment banking operation while J P Morgan Private Bank resides in the parent’s asset management division. Deutsche Bank’s private bank has been placed into an enlarged asset management group.
The days of largely independent private banks with a high degree of autonomy from their parents now look to be over.
For Ray Soudah, founder of Millenium Associates, a Swiss private banking M&A specialist banks figure that their private banking arms are mostly not large enough to stand alone, and that back office and systems costs can be trimmed by putting them into a main bank.
"Banks are also looking at more cross-selling opportunities and farming their private client and retail banking client bases," he added. Some private banks, he suggested, "may finish up as high-end retail banking companies".
For Christopher Wheeler, analyst at Mediobanca in London, a major motivation towards this absorption is the rising cost of regulation in wealth management.
"Banks are petrified of getting caught out and unless it is a core and large part of the business, they are retrenching to where they feel comfortable," he said.
In particular, Swiss banks are suffering from such forces, including pressure to do M&A deals, because of the tax issue with the US, where the Washington regulators are bent on fining banks like Credit Suisse up to $2 billion because of past tax evasion by clients.
But Mr Wheeler agrees that banks are also trying to work out what to do with sub-scale private banking businesses. Standard Chartered and RBS are both lodging wealth management into the consumer and commercial businesses "with this dream of getting entrepreneurs into the wealth management offering".