Global banks exodus from Latin America could prove short-sighted blunder

Over the last three years, leading private banks including Barclays, HSBC, Citi, RBC and Credit Suisse have sold, closed or substantially de-emphasised the strategic priority of their Latin American businesses providing onshore banking, broking services and wealth management. 

The strategic reasons for exiting the region are various but indications from HNWIs and practitioners across the region indicate deep unease about the approach used by some international banks to terminate or transfer client relationships. Core principles of good client relationship management have been often largely ignored with a disregard for long-term damage to reputation of many brands in the region.

Some LatAm private clients report being left in the dark about reasons why they have been asked to move, other than “the bank has changed its priorities”. Where whole businesses have been sold to another bank, implications for clients have often been poorly explained.

Damage to some client relationships have been exacerbated by short deadlines given to client-facing teams. One leading bank gave relationship managers just six weeks to move Latin American clients to other banks or for RMs to leave the firm completely. 

But these short-sighted strategies also provide opportunity for competitors remaining in the region. The director of international wealth at one major bank in Latin American confirms: “We are seeing a steady stream of Latin American private clients and families transferring to us from big banks exiting the region, and stories we are hearing about how clients have been moved on have often been very negative. We’re committed to this region for the long term and that’s never been more appreciated by clients than right now.”

The main cause for the change of strategy in the region is regulation, with banks designated “systemically significant” by the Swiss-based Financial Stability Board required to narrow the international reach of their business. Furthermore, international banks have been singled out for additional capital requirement surcharges, resulting from their complex, cross-jurisdictional businesses. Suddenly, banking groups with Latin American operations are heavily disadvantaged. Secondly, money laundering measures and US client-focused legislation have fuelled substantial fines and penalties, with financial and reputational consequences.

Yet international banks may come to regret their decision to step back from Latin America, which remains a good medium-term bet, boasting a growing middle class and younger demographic than other parts of the world, with more emphasis on entrepreneurial wealth.

US private banks may find it easier to win and service Latin American clients than breaking into the Asian wealth sphere. Latin clients value stable, long-term relationships, contrasted to the multi-banked, price-sensitive, highly transactional Asian mindset. Any bank wanting to build in Asia also faces entrenched and trusted competition from the likes of UBS and HSBC.

But recent legislative and regulatory changes are slowly making it easier to serve Latin American clients. A series of tax amnesties in Chile, Colombia, Brazil and Mexico has encouraged greater disclosure and transparency of HNW wealth, offering opportunities to advise newly tax-compliant clients. More of the money they earn in Latin America is staying at home, boosting the need for local relationship managers and investment advisers, working closer to sources of wealth. An influential and wealthy LatAm diaspora keenly observes how those brands advising them in New York, London and Geneva develop or retreat in their home countries.

Local players can fill the gaps left behind, provided they quickly accelerate the development of fully-rounded private client offerings, which they do not currently have. Boutique players, multi-family offices and ‘pure play’ wealth advisers have a massive opportunity to provide a high quality client service experience and build lasting personal relationships. 

The founding partner of one such Colombian multi-family office says: “There’s a big difference between the perceptions of wealth clients to leading US banks that have made a long term commitment to the region and those that have dropped out. It will take years of hard work for the latter to rebuild their appeal in Latin markets.”  

James Edsberg is managing partner at consultancy firm Gulland Padfieldold