Société Générale may have sold its private banking arm in Asia, a region with huge potential for wealth growth, but Scorpio Partnership says this could be a smart move for the French group and may even signal similar deals.
After all, SocGen has not truly exited Asia, notes the wealth management consultancy. The bank will operate through a memorandum of understanding with Singapore’s DBS, the acquirer of its regional business, developing a commercial partnership combining the strengths of the two franchises.
SG aims to free up investment capacity to accelerate development in core markets and to further strengthen the services offered to its clients in Europe, Latin America, the Middle East and Africa, where it exerts a heavier footprint, says Scorpio.
But the bank’s long-term strategy, through the partnership with DBS, still caters for the increase in wealth in Asia and is positioning itself as a leaner and smarter operator in the Far East, argues the consultancy.
The partnership will give SG’s clients access to DBS’s private banking proposition in Asia, while Société Générale will reciprocate, with DBS having access to Société Générale Private Banking’s offering in Europe as well as to corporate and investment banking solutions.
Indeed, if the arrangement proves successful, it could be a catalyst for similar west-east private banking agreements, suggests Scorpio.
True, Hong Kong and Singapore will grow in importance as Asian hubs and offshore centres, according to Roland Berger Strategy Consultants.
Yet the market is highly fragmented, notes Scorpio, and there are many challenges which makes private banking provision in the region challenging.
Local knowledge, language skills and customised service and product offerings all mean barriers to successful market entry are high and that in turn, is having an impact on the operational efficiency and effectiveness of business models.
Add to the mix the emergence of local competitors and additional regulation, adds Scorpio, and it is not difficult to see why margins are being pressured.
Certainly, other smaller players that are new to Asia have struggled to gain sufficient traction to warrant maintaining a business in the region in recent years.
(SG agreed last month to sell its Hong Kong and Singapore operations, which had assets under management of $12.6 billion as of December 31. The deal has been structured as a business transfer, with SG expected to receive a cash consideration in the region of $220 million. The transaction is subject to approval from the relevant authorities and is expected to complete towards the end of 2014.)