Private banks ready to scale back and shift online

A fast-transforming regulatory environment for both asset management and private banking was flagged during intensive industry discussions at the recent Fund Forum summit in Monaco, in which PWM took an active role.

Key to the trends identified were a likelihood banks would pull out of markets where they feared for the long-term future, while also upping spending on technology to reduce costs.

On the same day that prominent representatives of the wealth management industry sat down to discuss the shape of a consolidating private banking domain, increasingly reflecting a new economic and regulatory reality, two trend-setting announcements were made.

Firstly, HSBC sold off part of its Swiss banking operation to LGT in Liechtenstein. In a quest for increased profitability and reduced risk, the deal is believed to be cutting the countries in which HSBC’s Swiss private bank operates from more than 150 to around 70. LGT would not comment on the transaction’s price, but the bank expects its managed assets to increase approximately SFr10bn (€8.2bn).

While other banks are scaling back, LGT is expanding its Swiss hub to service clients in Central and Eastern Europe, the Middle East and Latin America. LGT says the acquisition will “strengthen our CEE and Latin American business and helps to leverage our Swiss platform”.

This refocusing of banks between geographical markets, customer and product segments, leading to “several hundred billion Swiss francs” changing hands between institutions over the next three years, was recently forecast by Ray Soudah, founder of M&A consultancy Millenium Associates and one of the Monaco speakers. 

The transaction is indicative of a period of merger and consolidation in Swiss banking, as “sub-scale” banks address impacts of tougher regulations, higher costs, low velocity of money and margin compression, say Lorne Baring, founder of B Capital and a panellist in Monaco.

“There is a similar story in European wealth management, but is will be seen most clearly in Switzerland, now that the old advantage of banking secrecy is effectively dead,” says Mr Baring.

Swiss banks, he says, are now running on exactly the same racetrack as their global competitors. “The choices are stark. Slim down and get fit, or sell up. I would wager that there will be more of the same soon.”

Another deal announced on the same day has potentially even more far-reaching implications for private banking.

Wealth managers are in turmoil, the Monaco audience heard, trying to balance books and mechanise operations while retaining confidence of clients, in a fast changing European regulatory landscape, which is banning the payment of incentives to distributors.

Blue-blooded London-based asset manager Schroders has joined a consortium of investors buying into online wealth manager Nutmeg. This web-based discretionary fund management tool is at the forefront of using online technology to facilitate distribution of financial products.

“Schroders knows technology will help it to attract the next generation of investors,” says Mr Baring. But costs are far from the only consideration for groups such as Nutmeg, employing the online portfolio model to capture growth.

It is the simple and direct nature of online selection of ETFs for retail accounts which will win the day for clients searching for transparency and control of investments. “I expect to see more and more digital recovery of investment services over the next few years,” ventures Mr Baring.

There are several Swiss private banks who still insist their clients want to “look them in the eyes” .

But there are just as many others, particularly at the younger, wealthier end of the scale, says David Ferguson, CEO of funds platform Nucleus, who are starting to prefer high-tech rather than high touch solutions to portfolio management. While most transactions can now be performed remotely, clients still need a face on Skype or voice at the end of the phone to blame when things go wrong.