Battle for Asia’s super-rich

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UBS’ giant banner on Hong Kong’s One Peking Road skyscraper, so big it has drawn complaints for keeping solar panels in the shade, is a testament to the renewed push among Swiss banks to win business from Asia’s burgeoning ranks of millionaires.

Switzerland’s wealth managers have long courted Asia’s super-rich amid slowing growth at home and an international crackdown on its bank secrecy rules that has made the country a less attractive place to keep cash.

But the competition has recently shifted up a gear, with the new boss of Credit Suisse signalling that he wants to embark on a similar path to cross-town rival UBS, which in 2011 chose to shrink its investment bank and focus on the more stable wealth management business, especially in Asia.

“Everybody wants to be in Asia,” said Andreas Brun, a banking analyst at Switzerland’s Zuercher Kantonalbank. “It’s not a sudden thing, but they suddenly talk about it as the main strategy.”

The attractions are obvious, with a recent slowdown in growth still leaving many Asian economies far outpacing Western counterparts. Boston Consulting Group (BCG) forecasts private wealth in the Asia-Pacific, excluding Japan, will grow on average by 9.7% a year through to 2019, more than double the rate in Western Europe.

According to the latest Asia-Pacific Wealth Report published in October by Capgemini and RBC Wealth Management, the region’s population of high net worth individuals — defined as those with investable assets of US$1 million (RM3.92 million) or more, excluding primary residences, collectibles, consumables and consumer durables — grew 17% to 4.3 million in 2013, while their wealth grew 18% to US$14.2 trillion.

That compared with growth rates of 13% and 12%, respectively, in the rest of the world.

But turning Asian riches into profitable business is no easy task for wealth managers.

Asia’s growing ranks of self-made millionaires and billionaires are proving more active in managing their wealth than Europeans living off inheritances, regularly playing banks against each other to get the best deal.

“It’s their own money, not the money of the father or grandfather,” noted Brun.

Asia’s super-rich also tend to spread their money out over six banks or so.

“Asia is a highly-banked market,” said Claude Haberer, head of Swiss bank Pictet’s wealth management business in Asia. “Asians are willing to try out a bank, but you have to explain what you bring to the table.”

And wealth managers are increasingly having to offer inflated pay packets to poach bankers in a region where demand for talent exceeds supply.

“Those who make it in the Asian market are those who are willing to invest significantly,” Haberer said. “There is definitely an issue of minimum size, below which you just cannot pay the entry ticket.”

Private banks in the Asia-Pacific typically need assets under management of more than US$20 billion to be profitable, according to consultancy Ernst & Young.

To bulk up quickly, banks could look to acquisitions.

In recent years, Julius Baer has bought Merrill Lynch’s wealth management business outside of the United States, while Union Bancaire Privee has snapped up Coutts International. Both purchases helped the banks beef up their presence in Asia.

Courting clients

Leading the pack in size at the moment is UBS, the biggest wealth manager by assets globally and in the Asia-Pacific, which BCG estimates will overtake North America in 2016 as the world’s wealthiest region.

In 2014, UBS managed US$272 billion in the Asia-Pacific region, according to a study by magazine Asian Private Banker. Citi’s private bank and Credit Suisse rounded out the top three with assets of US$255 billion and US$154 billion, respectively.

But competition is heating up, with Credit Suisse’s Asia-Pacific chief executive officer (CEO) Helman Sitohang saying the bank is targeting the region’s growing population of entrepreneurs.

Judging by its giant Hong Kong banner, unveiled earlier this year as part of the bank’s largest outdoor advertisement in the world, UBS is determined to defend its lead.

Edmund Koh, head of UBS’ wealth management business in Southeast Asia and the Asia-Pacific Hub, said Credit Suisse faces a challenge to catch up.

“They say Asia is an important market going forward,” he said. “For us, it has and will always be an important market.”

Koh hopes the Asia-Pacific will contribute at least one third of UBS’ private bank profits by 2017, compared with just under 30% now.

With almost 1,200 relationship managers, according to Asian Private Banker, UBS has more than twice as many bankers in Asia than any other wealth manager.

Sitohang told Reuters Credit Suisse would consider raising headcount in the region, though retaining bankers can be just as important as hiring new ones.

In the past, poaching advisers in the hope that clients would move with them has been one way for banks to grow in Asia. This is less the case after the financial crisis spooked investors from moving their money around too much, according to Andrew Hendry, asset manager M&G Investments’ Asia managing director.

“One CEO of a private bank said in his experience of losing bankers, only about 30% of clients go with them,” he said. “Pre-2008, you’re looking at anything around 70% to 80%.” — Reuters

 

This article first appeared in digitaledge Daily, on August 10, 2015.