IBM delivers wealth warning

Offshore operations face an uphill task to stay profitable, says report. IBM’s consultancy arm has sent out a warning to Europe’s community of traditional private banks: restructure or go under. IBM’s report, based on a survey of 105 wealth managers and private banks, has revealed many have lost money over consecutive years for the first time. They are facing “the biggest ever rise in costs” and a drop in margins. Philippe Theytaz, partner at IBM Business Consulting in Paris, said that as a result of cost increases, “the gap between best in class and average players is widening”. At the same time, the traditional European offshore model is dying, with onshore operations facing a brighter future. (See chart.) Mr Theytaz said that in order to survive in this environment, private banks would have to become more focussed on customer service and offshore banks in particular would need to become more transparent. But instead of suggesting that smaller players would have the best chance due to their self-proclaimed ability to offer more personalised customer service, Mr Theytaz said that in this context “big is beautiful”. Small and medium players, according to the survey, will come under more pressure than ever before. The respondents said that in order to stay in business, a private bank would need a critical mass of E16bn of assets by 2005. This is because massive investment is needed to retrain client relationship officers (CROs), and for the development of proprietary and non-proprietary products, services and technology. One-third of the participants admitted to having a cost-income ratio of at least 80 per cent, leaving them with no chance of profits. IBM suggested outsourcing non-core competencies would “not only enable CROs to optimise service, but also improve efficiency and reduce cost”.