Published March 25, 2008

Crunch time for private bankers as caution rules

This year's challenges will sift the best from the rest as the industry braces for a slowdown


(SINGAPORE) Anyone can rake in money when the markets are booming, but private bankers know that their true test starts only now.

After a couple of years of easy pickings, they know that the uncertainty enveloping economies and industries will differentiate the very best from the rest. As nervous clients turn conservative and focus on preserving their wealth, 2008 presents the booming private banking business with its sternest examination.

On the surface, it is business as usual. The posh, minimalist private banking hall of Societe Generale on the 35th floor of One Raffles Quay - with glass works by Australian artists Tali Dalton and Matthew Curtis and a gorgeous woman in attendance - appears to cocoon the wealthy from their worries. But private banks know they have a challenge on their hands.

The good ones will be able to sniff out money- making opportunities, even in uncertain times. 'You need an expert to tell you how (to make money) when markets are falling,' said Pierre Baer, Societe Generale Private Banking chief executive for Singapore and South Asia.

They may suggest going short, for example.

He explained that investors are typically 'long' - that is, they buy assets, either stocks or property - and if they think assets are toppish, they sell out. But not all manage to sell in time to make a profit, as markets come down. That's where the quality of the advice they receive will come in.

Steady heads are required now, said Peter Flavel, Standard Chartered Bank senior managing director and global head of private bank. 'We ask people not to react to the moment, but to reflect on the various investment cycles and to make long-term decisions rather than short- term decisions,' he said.

The private banks realise that their own fortunes could be tied to how they steer their clients through this rocky phase. Over the past five years, the major private banks in Asia have tripled assets under management from US$200 billion to US$600 billion today, according to Roman Scott, managing director of Calamander Capital, a Singapore-based investment and advisory firm. And while Asia continues to grow, the growth will be slower compared with previous years, private bankers said.

According to Barend Janssens, head of ABN Amro private banking Asia, 'performance was easy to show during the last two years.

'That now will change. Banks need to have products that can manage the swings in volatility for their ultra-high-net-worth clients, and in the high-net- worth sector, there is a realism that it is now time to protect wealth and be more conservative,' he said.

Others agree with his prognosis amid anxious meetings with nervous clients in need of hand-holding. Cash levels are rising as investors become risk averse.

'For investors generally, this year is about not losing money, rather than making money,' said SocGen's Mr Baer. 'The financial market volatility will continue for a while - that's quite unnerving for some investors.'

Some feel that both, the clients and the private banks, will have to change their mindset. Since the focus in many cases has been on the short term, private banking in Asia has seen a somewhat 'brokerage style' of business, said Mr Janssens.

'Now clients are taking a longer-term view and that will call for a different type of product and method of dealing with them,' he said.

Singapore, meanwhile, continues to attract new industry players. Macquarie Group is among the latest to set up shop here, with its first private bank outside Australia which will cater to the ultra-high-net-worth, that is those with at least US$30 million. But generally, there is a realisation that the industry will take a breather from its frantic growth in Asia.

Societe Generale does not expect a repeat of last year, when its income from the segment grew more than 60 per cent. Mr Baer would only say that he expects a 'double-digit' growth this year. The hiring spree in the industry may also ease.

'We will see a slowdown on hiring teams. There is a sense that the frantic hires of last year now need to be digested,' said Mr Janssens.

'Those hires now need to be productive. Not everyone is going to be welcomed anymore,' he said.

Mr Baer said that the past few years had seen an overextension of the business. 'Car dealers and hairdressers, by nature of their networks, had been hired by private banks and trained to be private bankers,' he said.

Standard Chartered, meanwhile, is on track to raise the number of its relationship managers to 450 over the next couple of years, said Mr Flavel. The bank has about 250 now.

The UK-listed bank, which is 19 per cent owned by Temasek Holdings, is also busy integrating the American Express private banking business it acquired last year. With its enlarged network of 33 offices in 16 markets, it is gunning for a significant slice of the private banking pie.

Other private banks, meanwhile, hope to preserve that pie by turning an uncertain year into a decent one.