The private banking market in
Spain is set to keep on growing in 2008 despite the impact of a
slowing economy and the property crisis that is hitting the
country, although the torrid expansion of recent years is coming
off the boil, according to new studies.

The expectation in Spain’s wealth industry is that the volume of
assets under management by private banks in the country will
increase 10 percent this year, according to Madrid consultancy
Tatum in its latest report on the local private banking
market.

The strong performance, however, pales in comparison with the 16
percent to 18 percent estimated growth posted in 2006. Even in
2007, despite jittery financial markets in the second half of the
year, the rate of growth is believed to have reached 15 percent,
according to the firm.

The reasons for this relative slowdown are not hard to find. The
economic environment in Spain has taken a turn for the worse after
several years of stellar growth, and forecasts for the economy as a
whole are getting gloomier by the day. For instance, BBVA, the
country’s second-largest bank, believes the economy will grow by
between 1.7 percent and 2.2 percent this year, and should be even
more sluggish in 2009. In 2007, the Spanish economy posted a rate
of growth of 3.8 percent.

Property hit hard

Property prices have been particularly hit by the downturn, which
has made some analysts question whether Spaniards’ levels of wealth
would be affected, hurting the private banking industry in the
process.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

But BBVA has pointed out that other sectors of the Spanish economy
continue to show signs of strength and are well capable of
repeating the rates of growth of previous years. Tatum also notes
that the collapse of property prices can convince more well-off
Spaniards that it is time to move away from this particular asset
class and to make more use of professional advisers like private
bankers. Property is traditionally the investment of choice of
wealthier Spaniards.

Currently, the private banking market still is largely untapped in
the country, according to research by Accenture, Morgan Stanley and
Madrid-based business school Instituto de Empresas.

The sustained increase of Spain’s GDP in past years “has helped to
create wealth among high net worth individuals, and consequently
the private banking business has seen a remarkable growth”, their
study finds.

The accumulated wealth among potential clients – estimated at
720,000 individuals by the study – reached €610 billion ($954
billion) last year. But only €220 billion-worth of assets, or 36
percent of the total, are under the management of specialist
advisers at the moment. The ratio is still not high, but shows a
clear improvement from the 25 percent share of 2005.

On average, clients have trusted assets of €848,000 apiece to the
care of private bankers, a number that ranges widely from less than
€200,000 per client in the poor Extremadura autonomous community to
more than €1.6 million in the wealthy capital, Madrid, which
accounts for over 40 percent of all assets under management by
private banks in Spain (see accompanying data).

The study concludes that private banking clients are gaining in
sophistication and are more eager to remain faithful to a
particular provider. The average period of time clients have been
with a private bank is 7.8 years, according to the study, which was
based on interviews with specialist departments of a range of
advisers.

Both the potential and recent performance of the Spanish wealth
market help to explain why private banking departments, both
domestic and international, remain strongly committed to getting a
piece of the action in Spain.

Main players

The players

“The Spanish market is characterised by an above-average growth
potential and an increasing demand for sophisticated services in
the area of active investment management for institutional and
private clients,” Vontobel Group’s CEO, Herbert J. Scheidt, said in
early April, announcing the opening of a branch of the Zurich-based
bank in Madrid. “The Spanish market is one of the cornerstones of
our growth strategy.”

More ambition was showed by La Caixa, the third-largest financial
group in the country. By the end of March the Barcelona-based
saving bank closed a deal to purchase the Spanish private banking
business of Morgan Stanley, almost doubling its volume of assets
under management to some €30 billion and taking over the third
position in the private banking league table in Spain (see
data).

The top two positions are still kept by Banco Santander Central
Hispano’s two private banking operations, Santander Banca Privada
and Banif, with AuM totalling €38 billion and €36.8 billion
respectively, according to Tatum calculations. Banif caters for
clients that many banks would classify as mass affluent, including
people with as little as €150,000 of investable assets. Santander
Private Banking aims considerably higher, taking on clients with
€500,000 of investable assets as a minimum.

La Caixa and Morgan Stanley tried a similar arrangement, as the
subsidiary of the American bank pursued a mass strategy in Spanish
private banking (with wealthier clients serviced from London),
while La Caixa worked with a minimum threshold of half a million
euros. Now, after acquiring the Morgan Stanley business, La Caixa
has announced that its revamped wealth operations will target the
higher bracket.

Tatum points out in its report that the jury is still out on which
strategy is better suited for the Spanish market. Big players like
BBVA and Deutsche Bank have been focusing on wealthier clients with
investable assets of €2 million or more.

BBVA Patrimonios, which is the domestic private banking division of
BBVA, has doubled its AuM in the past four years, reaching €12
billion, and aims to breach the €18 billion mark by the end of
2009. Each client has on average €8.7 million managed by the
department.

The mass affluent approach is certainly not short of supporters.
Banco Madrid, for example, bases its marketing strategy on the
concept that private banking doesn’t need to be restricted to a few
fortunate clients. The Madrid-based bank accepts clients with
€60,000 upwards and has some €3 billion of AuM.

Other Spanish players have been flexing their muscles as they look
to increase their share of the private banking in the country – at
a time of increasing interest from foreign banks. Banco Urquijo, a
subsidiary of Barcelona-based Banco Sabadell, which already has the
fifth-largest private banking operation in the country, has made
several high-profile hires in the past few months, nabbing bankers
from the likes of Credit Suisse and Santander.

For its part, in December BBK, a savings bank based in the rich
Basque Country, bought a controlling stake at Fineco, a small
specialist outfit, in order to get a foothold in the private
banking market.

Average AUM per client

Classier clients

Accenture, Morgan Stanley and Instituto de Empresas have also
compiled a profile of typical private banking clients in Spain,
finding better-informed, more mature investors who are not afraid
of diversifying among complex asset classes and international
markets.

In seven out of Spain’s 17 autonomous communities, private banks
interviewed during the study classified their clients, on average,
as “adventurous”. They include Madrid, Catalonia, the Comunidad
Valenciana and the Basque Country, four of the five largest private
banking markets.

In the fifth big market, Andalusia, clients are seen as generally
“sceptical”, meaning that they are suspicious of advisers and are
happy with minimum rates of return, as long as the risk is
low.

This is the predominant profile in eight other regions too. Only in
Extremadura, the country’s smallest private banking market, is the
average profile of wealthier clients outright “conservative”.

The study found private banking clients are generally happy with
their banks. Almost 64 percent of those surveyed said they are very
happy with the investment products offered to them, and over 58
percent think their banks are highly innovative compared to the
competition. Four in every ten also expressed a desire to have more
access to alternative investments. The same ratio said they would
like their banks to make private equity advisers available to
them.

Top 5 private banking markets in Spain (2007)

Satisfaction levels

But the picture changes when clients were questioned about the
level of returns obtained by their banks. The level of satisfaction
was “average” for 42.5 percent of the surveyed, and only 37.4
percent said they were highly satisfied with the way their
investments were made to work.

It should be noted that the survey was conducted in June 2007 –
before the current credit crisis and in a time when markets were
still flying high.

Fifty-six percent of all clients surveyed said they would like
their banks to get in touch with them every week, but 83 percent
expressed a desire to have to come to their banks only once a
month. Getting on well with relationship managers is highlighted as
very important by 80 percent, making the availability of capable
managers one of the most valued characteristics of a private bank
in Spain. And clients chose their banks taking into account mainly
their reputation and solvency.

The study also found out that, on average, a relationship manager
in a private banking department has seven years of experience in
the role and deals with 84 clients. The number of clients per
banker is growing rapidly, at a rate of 15 percent a year, the
study says, which raises questions over how private banks are going
to grow while maintaining the level of personalisation of services
expected by their clients.

Potential spanish private banking market