The rush of private banks recruiting large numbers of staff in Asia is creating an unsustainable bubble that could burst, according to Société Générale global head of private banking Daniel Truchi.
Truchi, who spent 20 years working in the region and who helped Société Générale create its private banking division in Asia, doubts some of the fast-growing private banks have long-term sustainability.
“Hiring 200-300 client relationship managers within one or two years looks ridiculous to me, it is nonsense,” he said.
Asia the ‘El Dorado of private banking’
“Asia seems to be the El Dorado of private banking,” he added. “If a bank has real strengths to pay up for three to six years, fine. But I do not think that shareholders of any bank eventually agree to pay like this in private banking development without some return from it within three or four years and they will not achieve return investment in three or four years.”
Standard Chartered, Julius Baer, JP Morgan and UBS have all announced ambitious staff recruitment plans in Asia during the past few months.
The latest research on the scale of rapid wealth creation in Asia certainly would seem to support these various banks’ ambitions.
The number of ultra-rich Asians climbed 37% in 2009, about double the global pace, according to the Merrill Lynch/Capgemini Asia-Pacific Wealth Report, as the region led the global economic recovery.
Concerns over Singapore
A separate survey by Credit Suisse found that personal wealth in the region grew at rates as high as 400 per cent in the last 10 years compared to the global average of 42%. It also reported that about a quarter of the world’s 1,000 billionaires live in Asia-Pacific. China alone is expected to double its current household wealth of $16.5trn by 2015, surpassing Japan’s household wealth.
Truchi raised particular concerns about Singapore.
He said: “I believe there is a real bubble there. All the ingredients are there… Looking at the profitability of private banks in Singapore today, I am not sure that this is a system that will [work].”
“First of all you don’t have a pool of resources sufficient enough, so then you have to downgrade the quality of services given to the clients and you have to pay high. So you pay high for a lower service provided to the client. How can this be sustainable?”
Truchi on start-up banks
Last year the head of Coutts’ Asian private banking division, Hanspeter Brunner, left RBS Coutts for BSI Bank in a highly-publicised jump along with up to 70 Singapore-based Coutts staff.
“We have seen some cases in Singapore, for instance, where a large team of 70-80 staff moved from one day to another, from one bank to another,” Truchi noted without specifically identifying which bank he is talking about.
“They do not have any platform or products. How can they survive in this business that requires very strong know-how, very strong operations, platforms, products and skills?”
Truchi’s views are widely shared among senior private bankers in the industry. Singapore-based UBS wealth vice-chairman Carlo Grigioni concurs.
“The clients at the end of the day are the ones who suffer and pay for it and are actually increasingly questioning our promises of creating that partnership between the institution and the client,” Grigioni said.
One senior banker, Su Shan Tan, group head of wealth management for DBS, has given the clearest warning yet of the dangers of the rush for talent, saying that the problem has already arrived.
“The cost-income ratio is no longer sustainable in our business because the cost of staff has just gone through the roof,” she said.
Truchi suggested that if Asian-based private banking operations become overburdened with costs and could not sustain themselves it could trigger another round of consolidation.