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Thread: Private bankers upbeat despite credit crunch

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    Default Private bankers upbeat despite credit crunch

    Published April 9, 2008

    Private bankers upbeat despite credit crunch

    By GENEVIEVE CUA


    (SINGAPORE) The world may be mired in a credit crunch, economic slowdown and rocky stock markets. But bankers catering to the well-heeled in Asia expect growth almost akin to that of last year, as they hunker down to squeeze yet more productivity out of their relationship managers.

    Credit Suisse managing director and head of private banking Marcel Kreis, for instance, says revenues and assets under management have been growing by 20-30 per cent annually. 'Our Asia Pacific private banking operations have been enjoying very strong momentum and this is expected to continue in the next two years, with the objective of doubling the Asian business.'

    Merrill Lynch head of global wealth management (Asia Pacific) Rahul Malhotra says the bank saw growth of 30-40 per cent in assets last year. 'I would be surprised if we didn't see those numbers this year . . . There is growth overall in Asian economies. Even with what is happening in the US, inherently we will see growth come through.'

    Private banks' relatively low penetration of Asian markets presents opportunities, says Tjun Tang, Boston Consulting Group director. BCG is currently compiling data for its annual wealth survey. 'We're seeing assets sitting in private banks of less than US$1 trillion. But household wealth across Asia comes to US$16 trillion . . . Many banks are growing 20-30 per cent a year. If the underlying wealth is growing at an 8 per cent rate, there must be an increasing penetration of services.'

    Market volatility, however, could impact banks' revenue streams as a substantial proportion comprises income that is transactional in nature. 'In Asia, a lot of revenues are generated through private banks selling transactional products. Now that there is less of a single directional trend, one risk is that private banking income may decline or be less stable,' says Mr Tang.

    Still, he expects margins in Asia to remain healthy. 'We're still fairly bullish on Asia despite compensation levels having gone up a lot. Pre-tax margins are still in good territory.'

    On the hiring front, the appetite for junior bankers appears to have abated, but almost all the banks say they are on the lookout for mature bankers with a book of business.

    Nick Hughes of Fox Partnership, which specialises in placing top-level hires in wealth management, says: 'A bank may suffer sub-prime woes. But if there is a strong banker talent, he or she is an asset, regardless of the current situation.' Banks, he adds, will demand more accountability.

    The firm continues to work on a number of 'interesting' projects, which includes placing Asian bankers in posts in Switzerland, for instance, to serve Asia from Europe, as well as the reverse - the hiring of European bankers for Asia.

    On investments, bank strategists continue to see opportunities in emerging markets, particularly the Middle East and Latin America, and selected Asian markets. JP Morgan Private Bank chief investment strategist Ivan Leung believes regional stock markets are 'excellent long- term investments'. He singles out Thailand and Taiwan, which have underperformed Asia ex-Japan for four years, but are at the start of a domestic turnaround. Singapore and Korea are cheap, he adds, 'but will likely require some patience'.

    On a 12-month view, Deutsche Bank Private Wealth Management forecasts a return of 10-16 per cent for US equities; 8-13 per cent for Euroland; and a higher 10-17 per cent for Latin America and Asian equities due to higher growth and earnings.

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    Default Re: Private bankers upbeat despite credit crunch

    Published April 9, 2008

    WHO'S WHO IN PRIVATE BANKING

    Tapping the Asian market

    Private banks are realising there is huge potential for growth in Asia and are confident of a strong year ahead, writes GENEVIEVE CUA


    MARKETS are down, writedowns from sub-prime losses aren't over, and the US is grappling with what some pundits believe may be the worst economic downturn since the Great Depression. Still, private banks that look after the portfolios of Asia's well-heeled are confident of a strong year ahead.

    Merrill Lynch's head of global wealth management (Asia-Pacific), Rahul Malhotra, expects a 30 to 40 per cent growth in assets this year, for example. That's just about the pace of last year's growth.

    'There is growth overall in the Asian economies even with what is happening in the US. Inherently we will see growth come through. People are still making and saving more money.

    'The types of investments clients may make could vary with the climate. In the past perhaps they invested directly in equities. Today there is more focus on fixed income.'

    Tjun Tang, Boston Consulting Group vice-president and director, says the outlook remains bright, even if poor market performance may be a dampener. Wealth, he adds, is typically driven by three factors - economic growth, savings rates and a strong investment market.

    'What is interesting in Asia is that we still have strong growth fundamentally in the economies. So, entrepreneurs are still benefiting.' Most Asians are also shielded from market losses, as they have a greater proportion of wealth in cash, relative to the wealthy in the US or in Europe.

    Private bank penetration is also 'quite low'. 'In Asia ex-Japan, we're seeing assets sitting in private banks of less than US$1 trillion. But household wealth across Asia comes to US$16 trillion. A lot of that may not make it to private banks, but many banks are growing by 20 to 30 per cent a year.'

    Managing director of Calamander Capital Roman Scott, who used to head Boston Consulting's wealth management practice, believes the wealth of non-Japan Asia will soon overtake that of Japan. Ten years ago, Japan dwarfed non-Japan Asia's wealth. By his reckoning, major private banks in Asia have tripled assets under management over five years from US$200 billion to US$600 billion. That may well be underestimated as some banks are reluctant to furnish assets data.

    How is a bank to get a larger share of clients' wallets? Investment banking and corporate finance are one avenue, particularly in the context of Asian clients' entrepreneurial profile. Credit Suisse managing director Marcel Kreis calls this segment of expertise 'private investment banking'.

    In Asia, entrepreneurs are highly represented among the wealthy, compared to other parts of the world, he says. 'Almost every client is an entrepreneur, mostly first or second generation owners of businesses with their wealth tied to their business and to real estate.'

    'There are a number of banks that in theory can deliver the integrated bank to clients. In my mind, there are really only very few that can actually do this.' He expects Credit Suisse's Asian assets to expand by 20 to 30 per cent annually.

    A second strategy is to simply be where the money is. This means setting up onshore centres in the most promising markets. UBS Wealth Management managing director Yeong Phick Fui says the management of domestic wealth is largely untapped. The latter comprises 90 per cent of the total wealth pool. UBS has earmarked a number of markets for domestic expansion, including Japan, Australia, Taiwan and China.

    Citi Private Bank managing director and region head (Singapore, Malaysia and Brunei) Tan Su Shan says onshore commitment is a must especially in India and China. '(We are) committed to an ambitious onshore build-out in these two economic giants to capture market share.'

    Yet another opportunity is to explore issues around inter-generational wealth transfer. Bank Julius Baer chief executive Wilfried Kofmehl says a study by PricewaterhouseCoopers has found that 80 per cent of Asian wealth will be transferred to the next generation in the coming years. 'The transfer of wealth will have the most crucial impact on how we conduct our business here,' he says.

    That is why banks jostle for a share of mind among the wealthy's children as well. Most banks now run 'next generation' programmes attended by clients' children to discuss various issues including investments and business succession. Even relative newcomers to the Asian wealth scene are unfazed by the competition.

    Lombard Odier Darier Hentsch (LODH), which boasts a two-century pedigree, set up an office here just this year. LODH deputy chief executive Richard Wee expects the bank's Asian assets to reach US$2 billion within two years. He says the bank's niche offering and a reputation so far untarnished by sub-prime exposure will offer an edge.

    '(Clients') biggest concern is the retrenchment exercises of banks who are most affected by sub-prime losses, in particular the banks which emphasised market share rather than profitability as a growth objective. Turnover causes distress to our private clients.'

    Meanwhile, finding good bankers surely remains one of the biggest and most stubborn challenges that banks face. Over the last couple of years, the frenetic drive for bankers saw compensation levels skyrocket.

    Nick Hughes of Fox Partnership, which specialises in top level hires in wealth management, says: 'Last year banks were quite reactive. It was a case of winning market share and paying to get bankers in with established books of assets under management.

    'Now people are showing more caution. Instead of bringing in five bankers, they may say - we'll take two very good bankers who we know can produce results. Bankers are having to be very accountable this year. I don't think it's all doom and gloom. Some of the packages are still unbelievable. But they have to be very accountable.'

    ABN Amro Private Banking Asia head Barend Janssens says: '(Banks) are looking for private bankers to generate at least US$5 million in revenue. Strong product knowledge and being able to generate revenue (but not to the point of product pushing) are skills in demand now. Clients are also more savvy.

    'Private bankers who listen to what their clients want, have their trust and exercise integrity will leap ahead as they are not product pushers but concentrate on creating value for the client.'

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    Default Re: Private bankers upbeat despite credit crunch

    Published April 9, 2008

    WHO'S WHO IN PRIVATE BANKING

    A wealth of opportunities


    THE year 2008 is certainly shaping up as a challenging one for private bankers. Yet, there are opportunities. Here is what some bankers think:

    Yeong Phick Fui,
    UBS Wealth Management managing director

    'Going forward in 2008, the fundamentals of the business - continuing wealth creation in the region, the conversion of non-financial assets into financial assets, and the increased need for professional advice as clients become more sophisticated - will continue to drive growth. We believe that any uncertainty in the near term will just be a temporary interruption of this strong secular trend.

    'The ongoing US credit crisis, inflation and the slowing of the global economy are likely to continue to cause markets to be choppy. It is precisely in these uncertain times that investors need well-considered advice to steer them through all kinds of market conditions and cycles. It is critical to stay the course through a balanced and diversified investment strategy, while taking advantage of the mispriced opportunities that arise.'

    Marcel Kreis,
    Credit Suisse managing director

    'The private banking business is evolving rapidly. The complexity of client demands has increased. The focus has shifted to total client wealth which includes liabilities as well as illiquid assets such as real estate or shares in client companies.

    'Private banks increasingly need to take a three dimensional view of clients - looking at their life cycle phase, source of wealth and investment behaviour. Many high net worth individuals in Asia are no longer satisfied with classical private bank services. They expect their bank to combine the full range of private banking and investment banking expertise to come up with leading edge and tailor-made solutions.'

    Ravi Raju,
    head of Deutsche Bank Private Wealth Management

    'In terms of net new assets, Deutsche Bank is optimistic about the next 12 months. We have retained and hired some very strong relationship managers, have a very strong platform, and a solid niche market among entrepreneurs. Given that economies continue to grow strongly and wealth continues to be created, we believe we should be able to attract strong net new assets.

    'One thing that is evident to clients is that Deutsche Bank has thus far come through the financial uncertainty more positively than others. For Deutsche Bank, it's a good time to play on our strengths. We have a strong credit rating, a strong brand and we've weathered the storm extremely well.'

    Tan Su Shan,
    Citi Private Bank managing director and region head (Singapore, Malaysia and Brunei)

    'We are witnessing unprecedented levels of volatility in both the credit and equity markets. . . Times of crisis present a challenge and an opportunity for wealth managers to prove that they are not just 'bull market innovators' but they can provide relevant ideas and strategies in bear markets as well.

    'Under any market condition, the best returns are generated by long-term investments. We advise our clients to look beyond daily price fluctuations and consider participating in opportunities that are part of the macro economic themes such as emerging markets, distressed assets, agriculture and infrastructure.'

    Wilfried Kofmehl,
    Bank Julius Baer chief executive

    'We are on the right track. On one hand, we have no exposure to the US sub-prime market. On the other hand, we have succeeded in attracting new clients and increasing our wallet share among existing clients.

    'Clients are getting more sophisticated and involved in markets. Therefore, we have to deliver even more timely and sophisticated products. They only accept rapid and error-free services. They are also performance- driven. A relatively positive performance of a 5 per cent loss against an industry loss of 20 per cent will not be acceptable.'

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    Default Re: Private bankers upbeat despite credit crunch

    Stop wasting your time on the forum. The forum will not make you rich.
    Have a break. Let me buy you a cup of coffee.

    - Your private banker

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