Private banks in Asia face tough times as rich clients burned by complex, high-margin products choose simpler investments and shun the institutions worst hit by the global financial crisis, analysts say.
Lower fees and shrunken asset levels will mean more job cuts as private banks can no longer afford the armies of often-inexperienced bankers built up during the boom years of 2004 to 2007 to serve Asia’s growing pool of millionaires.
While the reputation of the entire industry in Asia has been tarnished, the banks damaged less in the global meltdown may gain market share at the expense of UBS, Citigroup and Bank of America’s Merrill Lynch.
But the banks are facing growing flak from investors who say they are pushing products instead of offering independent advice.
Angry clients who lost money on structured products such as accumulators - which are especially popular in Hong Kong and earned the nickname “I kill you later” - have mounted public protests and some have filed lawsuits against private banks, forcing the industry into damage-control mode.
“The restoration of confidence and trust is an overriding priority for the wealth-management industry,” said Kathryn Shih, head of wealth management for Asia-Pacific at UBS, long the leading player.
“Asian private banking was on growth steroids for the last four, five years,” said Roman Scott, managing director of Calamander Capital in Singapore and an expert on the industry in Asia, which he estimated managed US$641 billion in assets in 2008. Private banks provide personalised financial and banking services to the rich, who typically would have at least US$1 million in investable assets and may want to invest beyond their home countries.
Certain characteristics of Asia’s high-growth private banking market will exacerbate the pain on the way down. Unlike old-money millionaires in Europe, many Asian private bank clients are entrepreneurs who still run their companies and have a larger appetite for risk.
They were offered - sometimes sought - highly leveraged structured products, which collapsed as markets tumbled.
“The level of hit to mark-to-market values and the level of depletion of cash reserves has been much, much higher here than you would get in sort of older, third-generation, non-working people’s money,” Calamander’s Mr. Scott said.
Citigroup disclosed this month that revenue at its Asian wealth-management arm dropped 29 per cent in the first quarter, a steeper decline than in the United States.
Private banks are also suffering from the hangover of a hiring binge in the region. The boom has seen UBS and Credit Suisse almost double their staff in the region since 2005. UBS now employs about 3,000 people in wealth management in Asia-Pacific.
The stereotype of the private banker in Asia is not the grey-headed veteran of industry tradition, but the attractive young charmer.
Kenneth Gan, a private-banking specialist at recruitment firm Hudson, said he often met private bankers who were in their late twenties in Asia, whereas in Europe those of a similar age would be mostly assistant or junior private bankers.
The end of the boom is forcing the banks to act. This month, UBS cut 240 staff in its wealth-management arm in Asia-Pacific, while HSBC said it would lay off 100 private bankers in Hong Kong.
“Clearly the large global brands that have overstretched themselves in the region and have the attachment to investment banking losses have suffered,” said Stephen Wall, a London-based director at wealth consultancy Scorpio Partnership.
Some observers say the future of private banking in Asia is a more fragmented, European-style model, with small, independent advisers unbeholden to big banks. Among global players, those that suffered the least in the global downturn are expected also to pick up market share.
HSBC Holdings, already a power in serving Asia’s rich, is seen as a relative beneficiary of the hard times elsewhere, along with Credit Suisse, Deutsche Bank and Standard Chartered. Big local banks like DBS Group Holdings are also expected to gain, along with European specialists like Julius Baer, Lombard Odier and EFG.
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Asia’s private banks face hard times ahead
After the boom years comes the hangover
Saeed Azhar and Tony Munroe
3 May 2009
Private banks in Asia face tough times as rich clients burned by complex, high-margin products choose simpler investments and shun the institutions worst hit by the global financial crisis, analysts say.
Lower fees and shrunken asset levels will mean more job cuts as private banks can no longer afford the armies of often-inexperienced bankers built up during the boom years of 2004 to 2007 to serve Asia’s growing pool of millionaires.
While the reputation of the entire industry in Asia has been tarnished, the banks damaged less in the global meltdown may gain market share at the expense of UBS, Citigroup and Bank of America’s Merrill Lynch.
But the banks are facing growing flak from investors who say they are pushing products instead of offering independent advice.
Angry clients who lost money on structured products such as accumulators - which are especially popular in Hong Kong and earned the nickname “I kill you later” - have mounted public protests and some have filed lawsuits against private banks, forcing the industry into damage-control mode.
“The restoration of confidence and trust is an overriding priority for the wealth-management industry,” said Kathryn Shih, head of wealth management for Asia-Pacific at UBS, long the leading player.
“Asian private banking was on growth steroids for the last four, five years,” said Roman Scott, managing director of Calamander Capital in Singapore and an expert on the industry in Asia, which he estimated managed US$641 billion in assets in 2008. Private banks provide personalised financial and banking services to the rich, who typically would have at least US$1 million in investable assets and may want to invest beyond their home countries.
Certain characteristics of Asia’s high-growth private banking market will exacerbate the pain on the way down. Unlike old-money millionaires in Europe, many Asian private bank clients are entrepreneurs who still run their companies and have a larger appetite for risk.
They were offered - sometimes sought - highly leveraged structured products, which collapsed as markets tumbled.
“The level of hit to mark-to-market values and the level of depletion of cash reserves has been much, much higher here than you would get in sort of older, third-generation, non-working people’s money,” Calamander’s Mr. Scott said.
Citigroup disclosed this month that revenue at its Asian wealth-management arm dropped 29 per cent in the first quarter, a steeper decline than in the United States.
Private banks are also suffering from the hangover of a hiring binge in the region. The boom has seen UBS and Credit Suisse almost double their staff in the region since 2005. UBS now employs about 3,000 people in wealth management in Asia-Pacific.
The stereotype of the private banker in Asia is not the grey-headed veteran of industry tradition, but the attractive young charmer.
Kenneth Gan, a private-banking specialist at recruitment firm Hudson, said he often met private bankers who were in their late twenties in Asia, whereas in Europe those of a similar age would be mostly assistant or junior private bankers.
The end of the boom is forcing the banks to act. This month, UBS cut 240 staff in its wealth-management arm in Asia-Pacific, while HSBC said it would lay off 100 private bankers in Hong Kong.
“Clearly the large global brands that have overstretched themselves in the region and have the attachment to investment banking losses have suffered,” said Stephen Wall, a London-based director at wealth consultancy Scorpio Partnership.
Some observers say the future of private banking in Asia is a more fragmented, European-style model, with small, independent advisers unbeholden to big banks. Among global players, those that suffered the least in the global downturn are expected also to pick up market share.
HSBC Holdings, already a power in serving Asia’s rich, is seen as a relative beneficiary of the hard times elsewhere, along with Credit Suisse, Deutsche Bank and Standard Chartered. Big local banks like DBS Group Holdings are also expected to gain, along with European specialists like Julius Baer, Lombard Odier and EFG.
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