JP Morgan out to grab both ends of market

Seven years ago, JP Morgan Private Bank drafted in its manager of Italian business, Olivier de Givenchy, to European headquarters in London, to mastermind the creation of a new department, servicing the wealth of international clients residing in the UK but not necessarily domiciled there, estimating the size of this segment at €100bn.

Today, Mr de Givenchy, a 16-year veteran with the bank, has worked his way up to run the London office, one of the jewels of the bank’s wealth management empire. The emphasis is on families who need a “sophisticated platform” for their international investments.

If a wealthy family in Europe is looking to make investments on a global basis, they are reluctant to search for private banking expertise in their local markets, believes Mr de Givenchy. Typically they would go to the US or London.

Fierce competition

Competition in this sphere is heating up, with his old sparring partners at Goldman Sachs and Morgan Stanley more recently joined by the likes of HSBC, Barclays, Schroders and even UBS, despite extensive problems at the Swiss bank. “Their margins were lower than what we were dealing with at the time. We are at a rarefied level,” comments Mr de Givenchy, clearly admiring the competition, which has both driven down fees and increased choice for clients. “There are many competitors there, but a lot of them go down to the lower end of the market as well.”

During the 1990s, rival US houses offered advisory solutions in Europe, whereas JP Morgan had more clients in the discretionary space. But the bank found itself in an uncomfortable position, offering sell-side research, generated by its investment bank, to self-directed clients and often conflicting buy-side research to discretionary clients.

After a review, Mr de Givenchy decided the bank could still work on both sides of the business, but that all advice would be generated from within the private bank, with no suspicion of products being off-loaded by commission-hungry brokers.

“While there is always a difference between long-term strategy and short-term tactics, the research behind it is now the same,” says Mr de Givenchy, whose bankers deal with both both advisory and discretionary mandates.

“It took us many, many years to get to this stage. A lot of our competitors are now doing the same thing, but when you are a large bank, it’s very difficult to provide a single view.”

The difference today lies in service levels and accompanying tariffs for each client segment. Though not quite hitting the 2.5 per cent identified by some consultants as necessary to guarantee the future of old-style, full-service, discretionary wealth management models, Mr de Givenchy admits JP Morgan’s model is relatively expensive, as each private banker is backed up by investment specialists, capital markets experts, wealth advisers and portfolio managers.

“I would really hope to make 2.5 per cent on clients, but that is a very profitable relationship at these levels,” says Mr de Givenchy. “In terms of pricing, I am sure we have clients who generate these types of fees, but it always depends on what they are buying,” he says, with the more sophisticated, complex products generating higher returns for the bank.

While JP Morgan might charge just 30 basis points to a larger client for a fixed income mandate, the battle for fees is clearly paramount to the private bank’s plans. “We are at the top end, where competition is fiercer and our clients invest very large sums of money,” says Mr de Givenchy.

An average client would lodge around $25m (€21m) with JP Morgan and the bank’s wealth management business is focused on this sector.

International presence

It is estimated JP Morgan runs more than $20bn from London, with plans to move more aggressively into UK regions such as the Midlands and Scotland. But the lion’s share of assets are internationally sourced, rather than domestic onshore business, and the bank hopes to build on London’s position as a private banking hub for Europe and the broader region.

This means expanding specialist teams concerned with asset classes such as hedge funds and private equity, which appeal to the sort of City professionals which the bank likes to see in its client base.

There are clear guidelines being passed down from the bank’s CEO Jamie Dimon to grow both asset management and private banking, but regional bosses are given plenty of discretion as to how they go about this. One of the preferred options is to broaden the bank’s focus by designing offerings for the mid-market as well as the wealthiest families.

“We will potentially look at other segments of the wealth market and look at how we provide the right service to mass affluent clients,” says Mr de Givenchy, with the UK seen as the perfect testing ground before such a service is rolled out across Europe.

Yet what other banks call the “mass affluent” segment is well below JP Morgan’s latest target. “We will be talking to clients with £5m (€6m) who are building their wealth and we want to be part of it,” he says. “The question for us is how to provide the best possible service.”

The bank is also closely examining the regulatory environment, when weighing up which services to offer to whom and from where. One concern is the UK’s retail distribution review and Mr de Givenchy’s team is already in direct discussions with UK regulators about possible ramifications. Although he believes there is much good sense in the initiative’s measures to protect private clients, he believes there is a danger that UK-based banks are left with a competitive disadvantage for some high-end services.

“If we say private equity must be priced in a particular way, which makes it more expensive, clients will say ‘I will buy my private equity outside the UK at a better price’,” he warns. “Private equity products can now be sold into the UK by an outside firm at a different price. These are important points for us. Maybe it’s not a big deal for the rest of the industry if JP Morgan cuts its London private banking staff by 200, but it potentially creates a less competitive environment to do business in the UK.”

Liquidity at a premium

Despite this emphasis on sophisticated strategies, liquidity is high on the wish-list for most of the bank’s ultra high net worth clients, with Europe currently facing issues of bankruptcy and currency stability. “Clients want more transparency, more understanding of what they are buying and more liquidity, so they can move faster,” says Mr de Givenchy. “There is so much happening right now, and while we don’t have an answer for everything, we want to make sure that if there are major changes we are proposing, we can get clients’ approval as quickly as possible.”

Olivier de Givenchy, JP Morgan