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.
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“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.”
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By GlobalDataStandard 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?”
Widespread
discontent
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.
