For some private banks, the great growth
bubble could burst in 2008. 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 . In any crisis
like this, he says, “where you see huge losses by banks, you have a
flight to quality”.

He adds, in an interview with PBI: “Definitely, some private banks
have been hit because they sold their clients too many related
collateralised debt obligation products. Clients of those banks
will not be happy. Those products were sold everywhere around the
world, including Asia where the new wealthy were investors.”

So a major switch may take place among clients towards banks
considered as financially sound and where they were not sold
dubious US real estate-related securities, the SG Private Banking
head suggests.

Truchi, who didn’t mention any specific institutions heavily mired
in subprime writedowns, stresses that the subprime crisis will have
“an impact on the clients as well as the staff themselves although
we still don’t know to what extent”.

Unsustainable growth

The banker also believes that the torrid pace of growth and high
competition in private banking, among players large and small, has
probably become unsustainable. “We could well see a shakeout in the
business. Many have been living in a bubble, seen in the way that
hiring packages for advisers have been going through the roof,” he
contends. “The industry has to take a breather and private banking
will probably become less buoyant.”

That retrenchment could be most pronounced among banks that are
finding the cost of developing onshore private banking capability
around the world too costly, Truchi asserts. “An onshore private
banking start-up takes time to break even and is a big commitment,”
he says. “I see signs that some banks are no longer prepared to
make that commitment.”

As a result, Truchi doesn’t discount the possibility of some
private banks “getting rid of some of their private banking outlets
in certain locations” because of a lack of profitability. That
could include branches, parts of networks or, in extreme cases,
even the whole division itself, if offers are sufficiently
attractive.

Still, the banker does see a positive outlook for private banking
overall in the coming year, despite “some downside on the financial
markets and global economy” as a result of the credit crisis. The
private banking market, particularly in Asia, is still moving
forward at a high pace, with “the new creation of wealth and with
new markets emerging”, he says.

For SG Private Banking, fast growth will consequently remain the
order of the day, Truchi indicates. He states: “Our budget for 2008
calls for us to be pretty offensive in the US and other regions,
including India, Russia, the Middle East and North and South
America.”

In particular, SG Private Banking has singled out the US for a
wealth push, says Truchi, who took over as head of the private bank
early in 2007: “When I took over, I looked at our geographical
presence and where we were strong or not. We cannot be a large
player without a US presence so our strategy is to enter the
American market.” He adds, without elaborating: “We are looking
very closely at a few targets.”

Significantly, SG Private Banking announced its first wealth
acquisition in North America in November, in the form of a deal in
Canada that perhaps gives a clue to its overall entry strategy.
Canadian Wealth Management – CWM Group – which has around C$650
million ($648 million) under management, is being bought, on
undisclosed terms. The firm, based in Calgary, “enjoys a solid
reputation in its market”, SG Private Banking said.

CWM’s wealth management business, which is built around highly
personalised client consultation, will benefit from SG Private
Banking’s international expertise, particularly in structured
products and alternative investments, allowing it to significantly
expand its services offering and meet the increasingly
sophisticated demands of clients, the bank added.

SG Private Banking will meantime pursue a “huge development”
programme across Asia, a region where it has established itself as
one of the top private banking players, Truchi declares. The bank
started to offer private banking services in China in October,
first in Shanghai and then with development plans for other cities
in China. It is “finalising” the hiring of a number of marketing
officers for Asia as a whole and is increasingly looking at North
Asia, including Japan – the biggest single wealth market in the
region, where SG Private Banking is considered as the largest
foreign bank in private banking.

But will a sliding global economy this year knock such ambitious
expansion plans off course?

While Truchi admits that the economic outlook has turned uncertain,
he notes that SG Private Banking has developed a track-record in
serving clients well – “in good times and bad”. He declares: “Even
if the securities market go south in a big correction, SG Private
Banking is one of strongest players and has been successful in all
types of market. We emerged in Asia, after the long ‘Asian flu’
crisis of the 1990s, as one of the best competitors. We know how to
structure and advise clients even in markets that are volatile and
on the bearish side.”

Truchi stresses: “We are not brokerage-orientated or surely not a
product pusher but a global solution provider.”

Diversifying assets

Wealthy private clients, particularly in Asia, will increasingly
continue to diversify into a whole range of asset classes, such as
commodities, real estate and private equity, he contends. The
private banks that will be “the first to suffer” will be those
involved in product-pushing, which is often hidden behind the
fashionable strategy of ‘one-bank’ amalgamations of private banking
and investment banking.

In addition, the French banker declares: “The ‘one bank’ sounds a
very nice concept and can help profitability and the cost-base.
However, the risk behind may result in the way you sell product to
this huge pool of private investors. With this kind of vision it
may translate into being a product pusher.”

Truchi confesses himself as fundamentally optimistic for the
prospects for wealth management in 2008, even if the global economy
slows and the subprime crisis claims more casualties. “Any crisis
is an opportunity for us,” he says. “Only the best private banks
will come out as winners.” 

New commercial department for SG Private
Banking

SG Private Banking has established a new department to co-ordinate
commercial activities and its marketing and communications strategy
internationally. François Barbe, the bank’s global head of sales
and marketing, will head the new unit.

Formation of the Paris-based unit demonstrates SG Private Banking’s
“commitment to pursue its international growth strategy”, the bank
said.

Other executives in the department comprise Benoît Vander Borght,
global deputy head of sales and marketing, and Bart-Jan Vander
Linde, global communications head. In addition, Frédérique
Dompeyre, SG Private Banking’s global head of marketing since 2002,
becomes a member of the department.

Barbe joined the Société Générale Group in 2002 as chief executive
of SG Private Banking Japan from BNP Paribas, where he had headed
the private bank’s development in Asia. He was president of BNP
Paribas Trust Bank Japan from 1998 to 2002.