global credit crisis on the standing of wealth management players,
several banks which have escaped making huge write-offs have
entered the top 10 of global private banking for the first
time.
British banks in particular make a powerful showing in a new
compilation of the world’s leading wealth managers, ranked by their
global high net worth assets under management. Barclays enters the
ranks of the top 10 wealth heavyweights for the first time, leaping
to ninth position last year from 16th in 2006 (see table).
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The British bank increased its assets under management (AuM) total
by 14 percent in 2007, calculated in local currency terms, to amass
a grand total of nearly $265 billion of client funds, according to
the ranking calculated by Private Asset Management (PAM), the
wealth researchers.
HSBC also performed strongly, gaining 26 percent more in assets to
$421 billion and so improving to seventh from ninth place.
Chris Meares, head of HSBC Private Banking has declared that HSBC
“is in a strong position” compared to some of its rivals in Europe
and the US which have been severely hit by the subprime mortgage
crisis and credit crunch.
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By GlobalDataAmong other strong performers, Deutsche Bank entered the top 10,
jumping to eighth from 11th place in 2006 with its $285.7 billion
of client funds. The German bank has identified private banking as
a major future revenue stream, indicating that like HSBC it will
exploit the “flight to quality” among clients concerned about the
impact of the global credit crisis to win new business.
The league table for 2007 remain dominated by the ‘Big Three’ of
UBS, Citigroup and Merrill Lynch. The latter two have nearly $2
trillion of client AuM apiece while UBS exceeds that figure, moving
to first place from second in 2006.
But UBS and Merrill have seen slower client assets growth than
their rivals, with signs that, especially in the case of the
troubled Swiss bank, clients are pulling money out at an
accelerating pace. UBS saw an 8 percent rise in client assets to a
total $2.04 billion.
Even so, none of the Big Three’s rivals will be likely to see
serious erosion in their domination of the wealth management
business in the foreseeable future. Their nearest rival is
fourth-placed Credit Suisse, with $745 billion of AuM or a little
over a third of the UBS total.
Even so, UBS is faced with an unprecedented regulatory assault on
private banking after the US Justice Department moved to force it
to disclose the identities of wealthy Americans clients with
undeclared Swiss bank accounts.
Threat to banking secrecy
Disclosure of these clients’ portfolios in the US’ pursuit of
claimed tax evasion would deeply undermine Swiss banking secrecy,
with implications for the role of Switzerland in the global wealth
industry.
Among other banks improving in the wealth league tables, Société
Générale improved to 26th from 28th place amid indications that the
French bank’s global private banking franchise hasn’t been
significantly affected by its huge equity derivatives
scandal.
This year’s ranking also shows the emergence of a new major player
in European private banking, as Italy’s Intesa SanPaolo has
consolidated its domestic merger and grabbed the 15th slot.
A bank that is based solidly in an emerging economy, Brazil’s Banco
Itaú, has seen its assets under management grow more than fourfold
since 2002 in part thanks to acquisitions in Latin America; it
appears in the 46th position.
Overall, wealth players posted a median increase in assets under
management of about 11.5 percent last year in local currency terms
– slightly down from 13.8 percent in 2006.
At the same time, the combined wealth of millionaires worldwide
grew to nearly $41 trillion last year, an increase of 9 percent
from 2006, according to the World Wealth Report produced annually
by Merrill Lynch and Capgemini Group.
Since 2002 total wealth held by high net worth individuals (HNWI)
has grown by more than 50 percent from $26.7 trillion (for full
analysis, see
Emerging nations drive wealth, More Chile as Latin America hots up,
Running out of alternatives).
As the global credit crisis has worsened the wealthy have been
fleeing to safer investments, the report found. Property assets
have been reduced from 24 per cent of the average HNWIs portfolio
to 14 percent. The allocation to fixed income securities has been
increased to 27 percent and cash holdings have been raised to 17
percent.
Giving grounds for optimism that, despite such financial turbulence
private banking can still keep expanding healthily, the Scorpio
Partnership wealth consultancy believes that the industry has still
not tapped the full potential of the market for high net worth
investors.
It believes there is more than $9 trillion of “untapped bankable
assets” among millionaires although it believes that it will
“require visionary banks to win this prize”.
Using much narrower definitions than the World Wealth Report,
Scorpio calculates in a new study that wealth managers actually
manage $17.4 trillion of assets, or 66 percent of the $26.3
trillion potential pool of bankable assets – roughly same figure as
in 2006.
So the percentage of potential assets actually managed has only
increased by 4 percent since 2003.
What Scorpio calls the top 10 benchmark banks manage only 20
percent of potential HNW assets worldwide. If its estimate of
assets that are actually “bankable” is used, the market penetration
figure jumps to 31 percent.
If the level of assets actually being banked is used, the level of
penetration climbs to 47 percent.
Looking at things this way, the much-touted fragmentation of the
private banking sector starts to seem vastly overstated,
particularly among the top seven players and specifically for UBS
and Citi with respective market shares of 10.9 percent and 10.3
percent, Scorpio contends.
Top private banking players
This indicates that “the top private banking players actually have
similar levels of market dominance as the top investment banks and
although they do not fall into the same category as Microsoft or
Nokia, they enjoy a global market share that is only dreamed of in
many industries”, it observes.
Looking at various wealth business models, specialist boutique
organisations with a relatively narrow geographical focus fared
best in 2007 when compared to their benchmark peers, both in terms
of operating efficiencies and their gross margin on managed assets,
Scorpio reports. Its researchers believe that private banking can
still generate new client business via services like transactional
banking and credit facilities.
Although ‘private banking’ usually connotes high-value personal
asset management, the current turmoil in the credit markets is
providing a strong opportunity for private banks to differentiate
themselves by extending their credit and enhanced cash management
facilities.
Investors often shift their weightings to cash but also seek to
take advantage of market opportunity. However, the average
proportion of deposits and loans to assets under management
remained virtually static for the big private banks in 2007,
Scorpio found.
Ted Wilson, Scorpio senior consultant says: “Private banks should
consider more active measures to increase the proportion of assets
that they currently lend out in order to improve revenues and
margins.
“We believe that wealth managers with strong banking capabilities
stand to be major beneficiaries of cash inflows as clients adjust
their allocations in 2008. Moreover, clients are also seeking their
banks to work more actively for them in these opportunistic
markets.”
Client
penetration by market
