Following Private Banker International’s second Germany conference at the end of April, and a collapsed merger between two of the country’s largest banks, Oliver Williams takes a look at the future of private banking in Germany.
Future of private banking in Germany: More Mergers
After talks stalled between Deutsche Bank and Commerzbank last month, rumours have circulated concerning other potential suitors for Deutsche, the latest being UBS.
But a Deutsche marriage would just be the start of a series of mergers in Germany, says Michael Kohl, managing director of Commerzbank AG, “There is no clear market leader [in Germany]. Everything is quite segmented”.
The wealth management market in Germany needs consolidation to ward off competition, Kohl told the Private Banking and Wealth Management Germany Conference in Frankfurt. “We talk about intensified competition. We have new entrants in the markets. Sale and loan banks are going further in their coverage – they are looking for HNWIs and UHNWIs. And then we have new offerings.”
These “new offerings” include fintechs and their robo-advisory platforms. Many will enter the German market through M&As, such as Moneyfarm’s acquisition of German peer vaamo in November 2018.
Expect to see more strategic partnerships, mergers and acquisitions in the latter half of 2019.
German HNWIs look to real estate for returns
While battling off competition, Germany’s wealth managers still need to make a return for their clients.
This is challenging given the current market outlook, which Gerit Heinz, global chief investment strategist at Deutsche Bank Wealth Management says is about growth deceleration but no recession. “That’s the key message for 2019.
“Stock markets are as high as they will be this year. But that does not mean you should go out of the markets completely.”
With German HNWIs currently allocating around 40% of their wealth to equities, according to GlobalData, that seems unlikely. However, it does open the door to other asset classes.
“We do see a shift towards real estate businesses,” says Kohl. Property currently makes up 10% of an average HNWI’s portfolio in Germany, GlobalData estimates. Wealth managers can expect this to increase as European markets flatline.
Brexit boom and bust
As Europe’s largest economy, Brexit – in whatever form it is concluded – will have an impact on Germany.
Any negative effects on industries exporting to the UK will be felt by their wealthy owners and, subsequently, private banks. Much of Germany’s HNW population owe their wealth to manufacturing for export markets.
But what about all those new clients moving to Germany?
Up to 2,000 financiers are expected to relocate from London to Frankfurt by 2020 according to a study by Helaba, a German bank.
Surely these and other wealthy financiers moving to Germany will supplement banks’ domestic client books?
Few of Frankfurt’s financiers attending PBI Germany have witnessed a Brexit boon, however. “I think there have been a few more local hires and maybe some people have moved here [from London], but it’s not been a big movement”, said one.
Public job postings underpin this opinion, shared by many. Goldman Sachs, Citigroup, JP Morgan, Morgan Stanley, Bank of America, UBS, Credit Suisse and Deutsche Bank posted a total of 1,545 jobs for bankers in Britain in January, but just 301 were listed in Germany and France, according to Reuters.
The future of digital banking in Germany
Asked whether Germany could be considered a market leader in digital banking, a panel comprised of Heinz and Kolh and joined by Christof Roßbroich from Avaloq and Leena Iyar of Moxtra, was clear on their answer: no.
Germany falls behind Asia and Scandinavia when it comes to the use of robo-advisors and other fintech products, the panel at PBI Germany agreed. Even cash is still widely used in the country, despite it’s near ousting in Sweden, 50 miles north of Germany’s seaboard.
Just 7% of German investors have used robo-advisors when arranging investments in the past year, says GlobalData.
However, wealth managers believe it is only a matter of time before that changes. When GlobalData conducted its survey in mid-2018, 57% of Germany’s wealth managers thought they would lose market share to robo-advisors in the subsequent 12 months.
Blockchain is another frontier for the German market. According to a survey by de Vere, a financial consultancy, 68% of HNWIs in the US, UK, Japan and Germany, will invest in cryptocurrency over the next three years.
But as Frank Wagner, CEO and founder of INVAO Group, pointed out during the conference, “Blockchain does not exclusively mean cryptocurrencies. And crypto doesn’t necessarily mean Bitcoin”.
To Wagner, who’s INVAO labels itself a ‘blockchain investment management company’, blockchain feels a lot like the internet did in the 1990s. “Nobody knows quite how to figure it out, but everybody can see there is potential.”