Rise of the regionals

Regional banks are attracting the larger share of Asia's ever-growing private banking customers. Devanshi Bhatnagar finds out why


"Ten years ago, private banking was associated with international names only," says Alan Luk, head of private banking and trust services at Hang Seng Private Bank. He recalls as a local player, it wasn't easy to pitch for business to Asian investors who preferred having their accounts with the big names.

"The financial tsunami was the turning point," says Luk. "Safety, visibility and interaction became the criteria and there was a shift of assets to the local private banks."

Luk refers to a shift in perception to which the large international banks were vulnerable during the crisis. By comparison, many of the more moderately rated and capitalised regional banks sailed through the crisis, showing their capital positions and risk controls to be much more conservative than their global peers.

Meanwhile, much of the new wealth creation globally is happening in Asia. All private banks are competing for Asian clients, but the regional banks with long-standing relationships with locals through their consumer banks find themselves on a strong competitive footing. They know who is rich, and they know their investing styles, because they've had many of these people as clients for years.

Regional banks are staffed by people actually from the region, which arguably gives them a more natural relationship with their clients (the international banks seem to understand this as they are now appointing a lot of local people to management roles.

Finally, the regional banks work with low-cost structures that give them flexibility to deploy resources to services that make a maximum impact with clients.

All of which paints a picture of why regional private banks are emerging as worthy competitors to international institutions for the all-important Asian market.

But let's go back to that turning point, the 2008-09 global financial crisis. The event pushed a reset button on banks' branding. Asian banks came through that period looking at least as creditworthy as some of the largest international banks, and Singapore and Hong Kong institutions basked in the glow of the excellent sovereign ratings and solid regulations of their home base.

The Asian brands were no longer irredeemable also-rans to the global banks. They were legitimate contenders, at least in their home markets.

Standard Chartered fared better than most international banks during the crisis, but Rajesh Malkani, head of private banking, East, at Standard Chartered Private Bank, remembers having to reassure clients. "This is our home, we have nowhere to go," he said to clients when the crisis was full blown.

Tan Su Shan, group head of consumer banking and wealth management at DBS Bank, says of the top 10 banks in terms of credit ratings, the safest banks are Asian.

"Safety being of paramount importance for the hard earned money of the new rich in Asia, there was a shift … to Asian private banks [following the global financial crisis]."

Boston Consulting Group (BCG) in a 2012 report on the wealth management industry says Hong Kong and Singapore are rising as private banking centres, largely because most of the new money is created in Asia, and clients prefer to bank locally. In the past, most of the new money came from the US and Europe with Switzerland being the banking centre of choice. Today, the main new money flows are Asian, and they want local accounts.

The BCG report says, "It is possible that Singapore and Hong Kong combined will surpass Switzerland as an offshore booking centre in terms of size in the next 15 to 20 years".

This does not rule out the international banks. Virtually all the big institutions have set up booking centres in Singapore or Hong Kong, or both. But while in the past the regional banks would find it difficult to compete for clients looking for a secret numbered account in Switzerland, they can compete for clients looking to deposit their money and trade in Hong Kong. They are becoming large, meaningful competitors thanks to the growth of their home markets.

The banks' performance is well reflected in their growth numbers.

DBS Private Bank's income from wealth management grew by one-quarter in 2012. In the same period the bank's assets under management (AUM) grew by one-fifth.

Bank of Singapore's AUM grew by more than one-third in 2012.

Standard Chartered Private Bank's AUM was up by 17 per cent in Asia in 2012.

Regional banks are playing to their strengths. For example, those institutions that work alongside an investment banking arm are diverting some of their deal flow to private clients. Tan says DBS consistently leads league tables in Singapore capital markets, for example capturing one-third of the market share for Singapore dollar bond issuance in 2012.

Standard Chartered is also a big player in regional local currency bond markets, and similarly offers its private banking clients access to the deals it arranges.

The regional banks also have a good understanding of the preferences of local investors.

For example, DBS was among the first private banks to offer CNH (Hong Kong-circulated yuan) investments, and continues to hold a big share of the yuan investments market.

Standard Chartered focuses on real estate lending and advisory, a favoured asset for many Asians, in particular its private clients.

The regional banks differ from the institutional houses in another regard: they are thriftier when it comes to relationships, and are less likely to lavish expensive events on clients than the international banks.

Clients can take their own view on whether this is a positive, but the parsimonious approach seems to be good for profits.

Luk says Hang Seng Private Bank has a cost-to-income ratio of 45 per cent, whereas most analysts say private banks average a cost-to-income ratio in Asia of about 70 per cent.

Bank of Singapore and DBS Private Bank say they are well below this average, without revealing their exact ratio.

Meanwhile, senior bankers acknowledge that many international houses are far above this percentage. Some banks are even believed to have surpassed 100 per cent - in other words, they are loss-making in Asia.

The regional banks say they are taking money they would be spending on marketing and on client events, and investing in other areas.

Bank of Singapore has spent US$34 million on technology over the last two years, implementing systems such as straight-through processing, which makes trading quicker.

"Asians are quite well known to have a big propensity to be active traders," says Renato de Guzman, chief executive at Bank of Singapore.

In July, DBS Private Bank relaunched its website with online trading. Clients will soon be able to book meetings and hold video chats with relationship managers using the site.

Hang Seng Private Bank is spending on staff to increase its mainland market share. The bank has hired a specialised team to find clients, tapping into unconventional networks such as immigration agents, accounting firms and law firms, to identify prospective customers.

Luk says that in the past three months since this team went active, mainland accounts grew 70 per cent.

Standard Chartered is scaling up its private banking presence by investing in the Forum - the geometric glass office being built in the middle of Hong Kong's Exchange Square - to serve as the bank's private banking hub for China. The bank will spend HK$1 billion on the building, of which it is the sole tenant, over the next five years.

But for the most part, the regional banks have caught a lucky break. They just happen to be based in the region in the middle of a decade-long economic boom, spinning off a rate of wealth creation that has no historical precedent.

"Our proposition is solid," says Tan. "The good news is that cash levels are high and wealth creation is going strong."




Swiss wealth managers based in Hong Kong have begun to show a preference for local recruitment over relocating bankers from their homelands, spelling bad news for private bankers hoping to reinvent themselves in Asia.

The prospect of Hong Kong, with its bounty of rich people, strong growth rate, stable economy and easy access to the mainland and the rest of Asia, holds obvious allure for private bankers. Financial services in this market are frequently commission-based rather than fee-based, thus helping generate high margins. Most of Asia's wealthy are fresh entrepreneurs, many of whom are under-banked and lack a personal or corporate succession plan.

Swiss wealth managers have been increasingly knocking on the doors of Hong Kong's headhunters. An experienced banker who understands true wealth management, wealth protection and legacy planning should surely be in high demand? Not so.

"We have seen many Swiss bankers come over to Asia expecting to land a lucrative job easily. Unfortunately, it's not that simple," says Katie Brunt, at Hong Kong-based recruiter, Fowler Fox & Co.

Many firms engaged in large-scale expansion plans have found Singapore or Hong Kong prohibitively expensive, to the point where some have been forced to retrench. Commercial rents in these two countries are some of the highest in the world, salaries are expensive and the financial services landscape is fiercely competitive.

"Growth in Asia comes at a price," agrees Cath Tillotson of Scorpio Partnership, a research firm specialising in private banking. "If we look at the upper tier wealth-management firms that have grown in Asia, their annual expenses jumped 18 per cent between 2010 and 2011, compared to an industry average of 3.47 per cent."

As a result, many Swiss banks in the region have cut their hiring budgets and are only opportunistically recruiting the odd senior manager or technical specialist from their home markets. Local recruitment is now preferred over relocating a banker from Switzerland. A source close to Credit Suisse Private Bank in Asia says the bank operates under a policy to acquire only local senior bankers.

"We haven't seen many Swiss private bankers transition successfully to the Asian market," says John Mullally, associate director of financial services at recruiter Robert Walters. "The only ones that do make that move are the general managers of new office set-ups or experienced managing directors that come over with their existing firms to take up senior leadership positions."

Small wonder. Private bankers are among the least geographically mobile in financial services, as their value depends largely upon their relationships and book of clients. As a private banker operating in Switzerland, it is hard to make the business case for moving to Asia, unless you are managing Asian clients' wealth from a Swiss base.

The other fact counting against such moves is the importance of having Putonghua language skills in roles that will involve building trust with wealthy Chinese clients, points out Mullally. "Private banking hinges on guanxi, building trust and relationships, even more so in Asia. It is going to be difficult to build such trust without being able to converse with the client in their native language."

There are probably only three Swiss private bankers in Hong Kong, for example, who can speak adequate Putonghua to converse comfortably with a client, adds Jonathan Hollands, managing director of search firm Carraway Group. While some are taking lessons in Putonghua to make themselves more attractive to employers, there are other factors standing against them.

"Swiss bankers' skill sets are becoming increasingly irrelevant in Asia," says Hollands. "Not only are local knowledge and contacts prioritised here, but the concept of private banking is very different. Many high-net-worth Asian clients are still in wealth accumulation mode, engaging in high levels of equity trading as opposed to wealth preservation tactics."

That's good news for local talent. In February, Sen Sui made headlines as one of the first chief executives appointed at the Asian branch of a Swiss private bank, when he took the reins at Crédit Agricole in Singapore. He agrees it is the start of a golden era for local bankers.

"More and more Swiss banks are hiring locally because they acknowledge a local focus can be advantageous," he says. "We have observed that local bankers with knowledge of the local culture and working proficiency of the vernacular find it easier to forge long-term relationships with their clients here."

He added that fluency in Asian languages is "critical" for the relationship-building process. "While English is usually the common and official business language, speaking the client's preferred dialect or language can give clients extra comfort and confidence," Sui says.

Most of Crédit Agricole's global budget in terms of resources and headcount is focused in Asia. Last year the bank recruited 20 relationship managers and support staff locally in Hong Kong and Singapore; it wants to replicate this growth in 2013.

Tara Loader Wilkinson



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