Private banking

Liechtenstein private bank LGT mulls further Asian acquisitions

CEO Prince Max von und zu Liechtenstein sees strongest growth prospects in the region as pricing of potential targets becomes ‘more attractive’

PUBLISHED : Sunday, 18 December, 2016, 4:26pm
UPDATED : Sunday, 18 December, 2016, 8:25pm

LGT, the private bank from Liechtenstein which acquired ABN Amro’s Asian private bank earlier this month, is targeting further growth in the region.

Despite the many headwinds facing the industry, it is looking out for other potential acquisitions, its chief executive told the Post.

LGT said that it expected to see its assets under management in Asia rise to over US$40 billion as a result of its acquisition of ABN Amro’s Asian and Middle Eastern operations that was announced on December 6.

“If you look at the private banking industry, we continue to see the strongest growth in Asia, both short and long term, so it makes sense for us to continue to invest here,” said Prince Max von und zu Liechtenstein, chief executive of LGT.

LGT is owned by the princely house of Liechtenstein, a tiny state in Europe that borders Switzerland and Austria. Prince Max is the younger brother of the current Crown Prince

“This overall strategic rationale is not new, we have been looking at acquiring in Asia for a while, but at present, because more people are selling than buying, the pricing has become more attractive.”

In the same week as ABN Amro sold its private banking operations to LGT, Edmond de Rothschild said that it would close its Hong Kong branch and, earlier this year, Barclays sold its private banking division to Singaporean bank OCBC.

Alex Tan, a local principal at law firm Baker McKenzie Wong & Leow in Singapore, said: “As part of the private banking industry’s ongoing strategy to achieve scale, we expect to see further industry consolidation generally and possibly selective divestitures by the smaller players in the private banking sector.”

We expect to see further industry consolidation generally and possibly selective divestitures by the smaller players in the private banking sector
Alex Tan, Baker McKenzie

As banks withdraw from the region, or from the private banking sector altogether, there are opportunities for others to expand.

“If you review our development since the financial crisis, we have made an acquisition globally every two or three years, though this is our first in Asia,” said Prince Max.

“We are very much looking to continue to grow in the region, predominately through organic growth, but if we see the right opportunity to create value through a good acquisition, we will do it.”

The private banking industry globally is struggling in the face of tougher regulations, as authorities around the world attempt to keep a closer eye on both financial services institutions and the assets of the extremely wealthy clients whom private banks serve.

“With regard to almost any aspect you can think of, the business has become much more regulated. This requires much more precise management, it has increased the fixed costs and has also required all banks to manage a bit of a cultural shift,” said Prince Max.

When asked whether there were any activities that private banking institutions would like to be able to do, but could not, Prince Max said that the goal was to be successful within the existing regulations.

“Of course, regulators often ask market participants to opine on certain matters, and we do, but ultimately what we set out to do is to win within the rules of the game set by the regulators.”

As well as added costs from the increasing regulatory burden, the private banking industry is threatened by advances in technology, with a number of ‘robo-advisory’ firms able to undercut the private banks by offering advice produced by algorithm.

With regard to almost any aspect you can think of, the business has become much more regulated
Prince Max, chief executive, LGT

A further problem for private banks in China is that there are insufficient assets in Hong Kong and Singapore, where the overseas private banks primarily operate, to allow them all to be profitable.

Tightening capital controls in mainland China, the home of many of the region’s emerging wealthy, are only adding to this problem. All of this is adding to the lower valuations.

“Many banks are not acquiring as they don’t have the capital to do so,” said Prince Max, though LGT does.

For 2015, LGT group posted net profits of 211 million Swiss francs (HK$1.6 billion).

As such, there is potential for further acquisitions, though Prince Max said the goal was to integrate ABN Amro’s business into LGT first.

“So much about acquiring successfully, is integrating successfully,” he said.

After an acquisition, previous clients of the acquired party may no longer wish to bank with the new entity, or if relationship managers leave the new organisation, they may take their clients with them.

In November, OCBC’s purchase of Barclays’ wealth management units in Singapore and Hong Kong was priced at 29 per cent below an initial estimate, after the amount of assets being transferred fell in between the sale being agreed and the assets being transferred.

At present, Prince Max is optimistic that not too many assets will be lost after the ABN Amro deal.

“Based on my first impressions, I believe that we will do better than we had assumed in our base case. “One does assume a bit of attrition, and you protect yourself against that in the way you structure the price agreement, but while it’s still early days, the initial response from the relationship managers and their clients has been very positive,” he said.