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July 23, 2009updated 04 Apr 2017 3:56pm

SG close to family office launch

The aim is to outwit private banking rivals in tapping into the ultra-wealthy, composed of super-rich individuals as well as families.

By John Evans

SG Private Banking, the increasingly aggressive wealth arm of French banking major Société Générale, is in the process of creating a platform aimed at family offices. The aim is to outwit private banking rivals in tapping into the ultra-wealthy, composed of super-rich individuals as well as families.

“Our family office platform is on the verge of take-off,” said Daniel Truchi, SG Private Banking’s chief executive, speaking to Private Banker International. “We want to design something different that will appeal to the large, globally-diverse family.”

Family offices are seen as an increasingly important part of the wealth industry and likely to capture a growing share of the total wealth pot.

According to Truchi, this reflects the wide range of requirements among sophisticated wealthy families, many of whose members may be domiciled in different jurisdictions, as well as the disenchantment of big investors with the quality of advisory and portfolio management services from some private banks during the market downturn.

Such families typically want to book assets in multiple jurisdictions, because of such disparate needs.

Truchi declared: “If you don’t have this global strategy, you are not in a position to compete.”

At the same time, multi-family offices are not considered to be “scalable”, in that there is a finite size to the number of families which any one centralised organisation can handle because of the huge complexity of needs. So even the biggest family office often needs to outsource to find the specific services it needs.

“Our approach is to create access to all the services that a bank can provide, building up in a ‘modulable’ manner so both multi-family as well as single-family offices can access the particular services they need,” added Truchi.

US equity fund among first products

He would not spell out the exact suite of services planned, for competitive reasons. But he does confirm that a special US equity fund will be among the first products on the investment management side.

What will reinforce the new platform is the expertise SG Private Banking has won from its partnership with one of the world’s biggest family offices, Rockefeller & Co. It is considered one of the most astute joint ventures in the wealth management industry of recent years.

Truchi confirmed that the alliance, agreed two years ago, has increased SG Private Banking’s capability to provide a dedicated offering to ultra high net worth clients and family offices worldwide, a key client segment of its growth strategy.

An important component in this regard is Rockit Solutions, an arm of Rockefeller which provides comprehensive services to other family offices.

SG & Rock may offer common products

In fact, word is that the venture with Rockefeller & Co, in which SG has taken a small stake, could lead to a common range of products and services in order that the current relationship continues to bear fruit for both parties.

Still, dealing with the ultra-wealthy is often considered to be a zero-sum game, not least because these clients have the clout to gouge their advisers on fees.

Truchi concedes this point, but says the key is to find “the sweet spot” where families are still small enough to provide a decent margin for their advisers, indicating that this roughly starts from the family with at least $50 million upwards.

“Segmentation is important here,” he said. “And the financial crisis has demonstrated that even the biggest clients will pay up for an excellent service.”

Another plank of the SG Private Banking strategy to attract the uber-wealthy is its trust services, in which it has been investing.

“This is providing significant growth,” said Truchi. “[Many wealthy families] want the comfort of a trustee-based wrapper for their various financial planning and inheritance needs.”

SG Private Banking itself does not rely on offshore tax havens or a tax-shy clientele for its core business, said the French banker, who is pessimistic about the prospects for “the very vulnerable” banks which rely on this activity.

Indeed, Truchi believes his bank looks increasingly well-placed to flourish and outperform its rivals in coming years.

Truchi is one of those bankers who believe that the current financial crisis and global recession will trigger inevitable exits from the wealth industry by a number of players, in an imminent bout of consolidation.

Several small M&A deals have taken place in recent months, such as the sale of AIG Private Bank in Switzerland to Middle East interests and the various divestments by Commerzbank/Dresdner Banks after their merger, he notes.

But the M&A business so far involving “small fish” is going to give way to “huge consolidation”, Truchi forecasted.

“You are going to see a number of private banks come onto the market,” he asserted.

That will include small to medium private banks but other players which may be part of large financial conglomerates forced, because of capital and balance-sheet constraints, to refocus their businesses. While Swiss banks are pressured by the global attack on banking secrecy, Truchi admitted some banks such as Pictet have pioneered innovative investments in fields like the environment and are enjoying significant growth.

Buyers that will help drive consolidation will include cash-rich banks and financial institutions in the Middle East and Asia which are looking to build their global wealth presence, Truchi contends.

“The banks which remain are going to be much larger in size,” he said.

The French banker meanwhile will not confirm published reports he is interested in acquiring Kleinwort Benson, the London-based private bank which Commerzbank has now put up for sale.

Analysts believe there is an “industrial logic” to a consolidation in the UK market that would lead to some benefits out of any tie-up.

Truchi doesn’t see all the current private banking players being able to keep up the pace.

“Many banks have enjoyed the bull market of the last decade or two,” he declared.

“When you are in growth mode, it is easy to make money. But for some players, when things like brokerage revenue stops and markets decline, it triggers a scissors effect.”

Competitive margins

SG Private Banking is in fact “flourishing” despite the tough environment, and is currently posting a best-in-class margin of over 110 basis points on managed assets, he says.That puts it up there with industry leaders like Credit Suisse, a bank that traditionally has enjoyed the highest return from their private banking businesses.

For example, Credit Suisse reported a gross margin on managed assets in first-quarter 2009 of 116 basis points, similar to its performance in 2009. Of the total, 86 bps came from recurring business and the remaining 30 bps from transaction-based business.

“One of the keys [to these high margins] is our multiple approach in our products and services range from simple investments to sophisticated financial engineering that boost the share of wallet,” Truchi said.

The banker says that his bank will be a selective buyer of attractive private banking arms in what he is convinced will be the coming industry shakeout, although he will also rely on organic growth as well, particularly in Asia where wealth operations come onto the market only rarely.

“It would be wrong to call us a predator, but right to call us one of the winners of the future,” Truchi concluded.

John Evans

2008 NET NEW MONEY

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