Standard Chartered seeks northern exposure

Despite the growth which Asia, and Singapore in particular, has been enjoying in recent years, bosses at regional champion Standard Chartered have understood that raising service standards and creating products to suit the changing mentality of its customers are key to maintaining profitability.

“Clients no longer want to make long-term investments,” laments Rajesh Malkani, the bank’s head of wealth management for Asia, where 70 per cent of its $50bn in private client assets are sourced from. “We have seen a dramatic change in their behaviour.”

Because markets are so illiquid, banks such as Standard Chartered can no longer issue the type of three-year structured products, which once powered their revenue streams. The maximum structured product term is now down to 12 months, although products where money is tied up for between three and six months are proving the most popular. But this change in the portfolio management landscape is not necessarily bad, claims Mr Malkani.

“This simplifies our work because you go back to basics. We are now focusing on investments into equity, bonds and cash, with less use of structured products and derivatives.”

One of the key changes is the encouragement of the use of derivatives for hedging portfolios, which he calls “an evolution in the industry,” rather than making the type of market bets popular during 2005 to 2008, which actually increased portfolio risk. “This has simplified our lives,” he smiles, with latest results showing 4,500 new private banking accounts created during 2011 and Asian clients’ assets up by 9 per cent.

Clients, he says, must start thinking ahead and taking advantage of today’s economic conditions. “Money is really cheap with interest rates so low,” believes Mr Malkani. “We should be thinking about locking in these rates for as long as possible.”

Yet there is reluctance among most banks in Singapore to talk about product innovation. “This game is not about products, it’s about service,” he says. “You can be innovative in products for a lead time of about five minutes, until somebody else copies you.”

One of the key advantages which Standard Chartered has over rivals is its cost structure. With the private bank embedded in the consumer banking division, resources can be shared and costs minimised. This is not something incomers such as the German and Swiss banks, focused on the top segment of Asian wealth, can enjoy.

“We can upgrade staff and private clients into a higher segment,” he says. “This means the bank gets a larger share of wallet and higher revenue from the same customer.”

Mr Malkani regularly tells his private bankers that the volume of their business is directly related to the strength of their client relationships and quality of advice they dispense. “It takes years to build this up, yet you can destroy it in a single transaction.”

MANAGING RISK

Singapore’s banks, he says, learned valuable lessons from the Barings crash of 1995, which saw this major bank wiped out and Singapore’s image as a financial centre suffer. Both the regulators and banks have since tightened up procedures in their pursuit of success, says Mr Malkani. “This is what makes a jurisdiction stronger. We have created a very well and tightly regulated financial system, which actively encourages the industry and that is how best practice emerges.”

This has also allowed banks to strike the right balance between what is commercially viable and a level of acceptable risk. Risk is something which goes deep into the psyche of a nation’s financial system, believes Mr Malkani.

“Investors’ memories of risk might be short, but those of regulators and financial institutions are certainly much longer.”

Standard Chartered, like most competing banks, is re-orienteering its business model to take advantage of rising numbers of wealthy individuals in China, to the north, particularly the growing number of ‘offshore’ clients looking to switch their residency or set up a second home in Singapore.

Taking in the panoramic view from his offices on level 32, Mr Malkani slips into tour-guide mode and points out the key landmarks, which show Singapore’s ongoing re-invention. Like competitor banks, Standard Chartered has moved from the city centre to reclaimed land in the Marina Bay Financial Centre. Previously, employees were scattered around four offices. He points out the Fullerton Hotel, previously the General Post Office and Boat Quay, where Chinese dockers once unloaded cargoes from ships. The old docks now thrive as an Alfresco eating area.

In this way, the country’s banks also need to keep refocusing to take advantage of new opportunities. Previously, Singapore’s wealth managers focused on servicing nearby Indonesia – also visible from Mr Malkani’s office – Malaysia, Thailand, India and the non-resident Indian population in the Arab Gulf. Now, he believes his bank must look for more northern exposure.

This means focusing on China’s growing businesses, flotations and booming regions. “China is a relatively new market, still in its infancy, but it is a closed economy,” explains Mr Malkani, with exchange controls limiting the scope of products, and as yet, restricting Standard Chartered’s distribution footprint.

He compares potential growth from China to the local business his bank is currently harvesting from Singapore and Hong Kong, which both have access to global markets, with capital able to flow in and out freely. “In terms of wealth, China should be 10 times bigger than Hong Kong and Singapore,” he explains. “But in terms of access to global markets and sophisticated products, we are very limited as to what we can offer clients in both China and India.”

Currently, around five of Mr Malkani’s wealthy customers each month apply for Singapore residence under the city-state’s controversial Financial Investor scheme. These are typically Chinese parents whose children are studying and beginning to put down roots in Singapore.

SAFETY FIRST

The new breed of client, who can switch jurisdictions at the press of an iPad or laptop key, is particularly conscious of safety. He talks about the recent celebratory scenes in the Standard Chartered building following the bank’s upgrade from A+ to AA- by S&P.

“We got upgraded in a world where everyone else is getting downgraded,” says Mr Malkani excitedly. “There was a great buzz going around, you can’t imagine what it was like. Customers were actually calling to congratulate us and saying ‘I am happy that my money is so safe!’”

Unlike Swiss banks, which built their models on promises of secrecy and minimising tax bills, Asian banks do not face the challenge of a changing paradigm in private banking, he says. “Clients come to us looking for safety and performance returns. That’s what we have built our industry on. For us, secrecy was never a part of our value proposition.”

That said, there are certainly increased funds flowing in from European investors, although Mr Malkani denies that this is secrecy-led custom disillusioned with the winding-down of some of Switzerland’s previous advantages. “If you see money coming from the West to the East, it is not coming to us because people see us as a tax haven,” he says.

“It is because they want an exposure to Asia, because they want to see better returns on their investments. Some even come for safety, because Asian banks have some of the best risk ratings in the world today.”

CV

Rajesh Malkani

October 2010: appointed head of Standard Chartered Private Bank, East. Based in Singapore, Mr Malkani has responsibility for the private bank’s operations in South East and North East Asia. Prior to this appointment, he was head of private banking, Singapore and South East Asia

Prior to Standard Chartered Bank, Mr Malkani was head of marketing, Southeast Asia for BNP Paribas Private Bank and held senior positions at UBS in Hong Kong. Mr Malkani started his career with ANZ Grindlays Bank in India, in 1987

Rajesh Malkani, Standard Chartered