Published March 12, 2008
Clients sticking with UBS, Citi
Revelations of sub-prime exposure create conservative mood as customers take time to re-evaluate their portfolios, reports SIOW LI SEN
IT IS no surprise that UBS and Citi private banks are the top choices for rich Asians. But what may raise some eyebrows is that despite the beating these institutions have taken recently, their customers remain loyal.
It seems that when it comes to a person's private bank, the love affair is enduring - for better or for worse.
According to Roman Scott of Singapore-based investment and advisory firm Calamander Capital, private banking customers hardly move. And rarely do they close an account.
'It does appear that the sterling reputations of both the giants in the business, especially UBS, have been affected by the sub-prime exposure story,' Mr Scott said.
Undoubtedly, this reputational damage could lead to a loss of market share in wealth management, as the apparent advantage of the giants over smaller boutiques is eroded, he said.
'However, such changes take time. In the world of private banking, clients move funds slowly. And rarely - if ever - do they actually close an account once they have it.'
Mr Scott, who is also economic spokesman for the British Chamber of Commerce, said any effect on the giants will been seen over the medium term, as the new money their private banking clients make is placed in new, or different, homes.
Wilfried Kofmehl, chief executive, Singapore and head of South-east Asia for Julius Baer, said: 'Naturally, the market situation raises legitimate questions and higher awareness among our clients. During this phase in particular we are even closer to them, providing them with all the support they need. We are very pleased with money inflows, although it is difficult to say whether this is partly due to clients moving assets from other banks.'
Julius Baer, a pure-play private bank opened its office in Singapore two years ago.
Carlo Grigioni, UBS vice-chairman, global wealth management and business banking, said: 'While I do not wish to understate the effect of UBS's exposure to holdings in US mortgage securities, any client unease has to a large degree been assuaged by the recent endorsement by UBS shareholders of the proposed capital increase.'
UBS, which analysts reckon faces up to US$15 billion of credit-related losses this year, on top of last year's US$18 billion of write-downs, has had its capital repaired by infusions from the Government of Singapore Investment Corporation and a Middle Eastern investor.
'The capital injection will boost our capital adequacy to higher than the current ratios of any of the world's 10 largest banks,' Mr Grigioni pointed out.
Most units across the UBS organisation have continued to perform robustly, so clients have remained relatively sanguine, he said.
What will be challenging for the entire private banking industry is any slowdown in wealth creation in Asia resulting from a recession in the US. Over the past five years, private banks have grown exponentially in Asia and have hired frantically to cope with the pace, pushing costs up.
'Everyone will face lower profits from existing customers and lower growth of new customers,' said Calamander's Mr Scott. 'Those that have spent the most on recent expensive hires will have the biggest challenge.'
The coming year will be challenging for private banks, but there will still be growth, according to Pierre Baer, chief executive, Societe Generale private banking - Singapore & South Asia.
'The private banking market, especially in Asia, is still moving forward at a high pace, with the new creation of wealth and new markets emerging,' he said.
Monica Wong, HSBC private bank Asia chief executive, said: 'The situation has to some extent created a mood of conservatism. Clients are taking the time to re-evaluate their portfolios and rightly so, as they factor in the risks inherent in the markets now which could impact them going forward.'
Tan Su-Shan, Citi private bank managing director and head for Singapore, Malaysia & Brunei, said growth will come from established markets like Hong Kong, Singapore, Taiwan and Indonesia as well as new hot spots like China, India and Korea.