Singapore: Asia-Pacific banks are stepping up hiring private bankers and seeking acquisitions to grab market share in an industry so far dominated by foreign players such as UBSand Citigroup.
The bold moves signal a shift in the balance of power away from Western banks, who are suffering from massive credit losses and accusations they sold toxic investments to rich clients.
Banks in Singapore, Australia, China and Japan are also boosting wealth offerings to benefit from an increasing trend among the rich to invest in their home markets and in simpler financial products.
The domestic banks are initially focusing on “high net worth” individuals with $1-$10 million in assets, with an eye on the super rich as they expand in the fast growing markets of China, India and Indonesia.
“There is a good window of opportunity for these guys to take market share,” said Bhalaji Raghavan, a senior adviser on banking in Asia at consultancy Capgemini.
“If they continue to do well and execute well, I am sure they will gain momentum and become reasonably good banks.”
The industry shake-up comes at a time when the rich, burned by bad investments, want better advice, transparency on what they are investing in and real-time data on their trading positions.
A PricewaterhouseCoopers survey showed that for 53% of the rich their primary source of financial advice was their own research and knowledge, reflecting a “significant” lack of trust in private bankers.
Assets of “high net worth individuals” in Asia dropped 22% to $7.4 trillion in 2008, according to Merrill Lynch/Capgemini’s World Wealth Report 2009.
Foreign banks, who have traditionally relied on offshore centres Singapore and Hong Kong to tap rich clients, are also under pressure to move their businesses onshore as a global fight against tax cheats forces countries around the world to ease strict banking secrecy laws.
The weakness in the offshore model was thrust into the limelight after Switzerland agreed to reveal names of 4,450 wealthy American clients of UBS in a tax dispute settlement that pierces traditional Swiss banking secrecy.
Asian banks are also looking at acquisition opportunities for growth as foreign private banks such as ING, hit by credit woes and a lack of scale, exit the region.
ING, which did not even rank among the top 10 players in Asia’s private banking league table last year, is selling its Asian and Swiss units. Singapore’s DBS Group, ranked the sixth biggest private bank in Asia by Calamander Capital in 2008, is one of the bidders, sources have told Reuters.
In Australia, the “big four” banks are increasing their dominant share of the wealth business and some, like Australia and New Zealand Banking Group, are building a private banking business overseas.
ANZ recently announced plans to hire more than 100 private bankers in Asia over the next 18 months, a small reversal to last year’s job losses that followed a hiring binge between 2004 to mid-2007 when job-hopping and poaching were widespread.
Bigger rival National Australia Bank bought Aviva’s wealth management business in Australia, and in July agreed to buy 80.1% of Goldman Sachs JBWere’s private wealth business in Australia and New Zealand.
China’s major banks have all launched private banking operations over the past three years, with Bank of China taking the lead in March 2007. The lender is keen to expand in Asia to target Chinese and ethnic Chinese clients.
Even in larger economies like India, competition is heating up between foreign banks like Morgan Stanley and Deutsche and home-grown wealth managers.
Consultant Celent estimates informal wealth managers such as small brokers and investment advisers control 1.5 times the assets managed by bigger institutions like the private banks.
“As the pie grows, Indian players will gain greater market share because this is a business where clients have to feel comfortable about a brand and knowing that the brand will exist in India for a further period of time,” said C. Jayaram, head of the wealth management arm of Kotak Mahindra Bank.
Asian banks are trying to gain ground at a time when the rich may be looking to put more money into Asia.
The Merrill Lynch/Capgemini report said 68% of overall investment by the rich in Asia-Pacific was in their home markets last year, a level second only to North America’s 81%.
“We are excited about the possibility of becoming a bigger player in Asia as it grows in stature in the global market,” said Kwong Kin Mun, DBS head of private banking for Southeast Asia.
“In line with DBS’ regional strategy, we also see tremendous wealth creation in countries ranging from China to Indonesia and are keen to make further inroads there.”
Foreign banks like UBS and Citigroup, meanwhile, are also not backing away from Asia, where they led the private banking league table last year.
“The scale and depth of our business will enable us, simultaneously, to satisfy the demands of an increasingly stringent regulatory environment and the ever-changing needs of our clients as the region returns to growth,” said Christine Ong, head of UBS Wealth Management in Singapore.