Retail players fail in tough private arena

Wealth management remains all the rage. This hugely fragmented market continues to expand. The latest Boston Consulting Group report shows above average wealth growth in Europe, the Middle East and the Asia Pacific region. Even Japan, once a no-go area for Western private bankers, haunted by the constantly looming deflationary spectre, showed 5 per cent growth during 2005. Only the world’s largest wealth market – the US – is failing to shine. Be assured, therefore, that the big American banks will all be conducting regular sorties into other regions, claiming to have learned how to deal with different cultures. But are these claims worth the paper they are written on? Can an American bank gain significant market share in Europe or Asia? When asset prices are broadly rising, it’s easy to make money from private banking. This is borne out by record results for the whole wealth management sector. But is this business sustainable? For the world’s leading wealth managers, the answer is yes. UBS derives 40 per cent of its revenues from wealth management. Like Credit Suisse, it has a central factory in Zurich, where product selection and manufacturing boffins work from the crack of dawn each day, constructing the most efficient investment vehicles for private and retail clients. Then they have satellite units elsewhere, building locally relevant products for each market. They acknowledge the difficulties of recruitment, yet they attract the best product specialists and advisers. This means actually buying assets. If you bring in a team of 50 advisers from a rival, you are acquiring several thousand fee generating client portfolios. Most other wealth managers cannot compete with these two giants. Look at the likes of “rising” retail institutions such as SocGen, BNP Paribas and Deutsche Bank. They can only concentrate on several targeted areas for wealth management. They can select India, or Eastern Europe – somewhere where they have already made a commercial banking acquisition – and concentrate their efforts there. According to Switzerland’s best-known private banking M&A strategist, Ray Soudah, this type of blueprint may be a mistake. He advises any institution, which cannot achieve a share of between 5 to 10 per cent outside their home market, to sell up, and seek something more profitable. Particularly as valuations are so good. The key problem, he believes, is finding the right staff. But he expects this to fall on deaf ears. “Banks are reluctant to dispose of subscale onshore operations outside their home market,” says Mr Soudah. In fact, they are more likely to buy additional ones.