The investment solutions team of Indosuez Wealth Management (WM) in Asia is set to get a boost with the addition of Credit Industriel and Commercial (CIC) staff by the end of this year, but scaling up assets will continue to be a challenge for the combined entity, according to experts.

Currently, the Indosuez team comprises 36 specialists across Hong Kong and Singapore.

After the CIC integration, the team will expand to "around 55 members", Arjan de Boer, head of markets and investment solutions for Asia at Indosuez Wealth Management, told AsianInvestor.

The integration is expected to be completed by December this year, he said.

The enlarged products team will comprise structured products, fixed income, foreign exchange, equity, discretionary portfolio management, corporate solutions, wealth structuring, insurance, funds, private equity and deal execution specialists, he said.

“After the integration with CIC, roughly two-thirds of the team will be based in Singapore while the remaining third will be based in Hong Kong,” said de Boer.

In addition, the Asia market solutions team will be able to leverage off the expertise of its specialists globally, but predominantly in Geneva, he added.

In line with what other private banks are doing in the region, Indosuez WM, which is part of French group Credit Agricole, is also focusing on bulking up its fee-driven discretionary porfolio management (DPM) services.

The wealth manager announced the promotion of Grizelda Lee as head of discretionary portfolio management (DPM) for Asia in September, replacing Pascal Meilland who left the company. Lee was previously head of Indosuez WM’s advisory service for Asia.

There are plans to expand the DPM team in coming months, de Boer said, but did not elaborate further. Indosuez WM declined to reveal how much of its Asia assets under management (AUM) is accounted for by the discretionary business.

Consolidation crunch

The wealth management company announced a deal to buy CIC’s private banking business in Singapore and Hong Kong in July. After completion of the transaction, Indosuez will have $14 billion in assets under management in Asia.

The acquisition is the latest in a string of Asia-focused M&A deals that have taken place in the past 18 months: DBS acquired ANZ's wealth operations in October 2016, LGT acquired ABN Amro's business in December of that year, while Bank of Singapore acquired Barclays's Asia operations in April.

In most instances, the goal is to increase scale in terms of assets managed by private banks, and to use economies of scale to bring cost to income ratios down. According to Scorpio Partnership, the cost income ratio of private banks in Asia averages between 68% and 70%.

However Indosuez WM remains relatively quite small in that regard even after the CIC acquisition, when compared to the wealth management giants such as UBS and Credit Suisse.

UBS, for instance, had about $373 billion in AUM in Asia at the end of March, according to a Business Times report in May.

Industry observers had earlier told AsianInvestor that despite the CIC acquisition, Indosuez could still be seen as an acquisition target itself.

One industry expert who declined to be named noted that despite the boost to the investment team, for the Indosuez-CIC acquisition to become profitable, job cuts will be needed, especially in middle and back office functions, over the next two years to avoid duplication in certain roles and keep a lid on overall costs.

He also believes it will be tougher for the combined entity to acquire further scale rapidly against the high cost of hiring senior bankers and limited talent pool in the region.

Julia Leong, private banking lead for PwC in Singapore agrees with the sentiment: "The increasing cost of doing business can erode profitability of smaller private banks if they cannot scale up or attract talent."

Scaling up is crucial

There is broad consensus that private banks in Asia now need at least $30 billion in AUM in the region to survive.

However, like Indosuez, there are other smaller private banks operating in the region with lower AUM, including UBP, EFG and Bank J Safra Sarasin.

But while scale may be increasingly important, some experts have argued previously that it is possible for smaller wealth managers with focused offerings and a strong discretionary business to survive.

However, it is also a fact that some smaller private banks, which are part of larger global entities, are doing little more than leveraging on global operating platforms and utilising global resources to subsidise the Asia business, the industry expert who declined to be named told AsianInvestor

“It’s a matter of time before the head-office realises that can’t go on forever,” he added.

Steven Seow, head of wealth management for Asia at consultancy Mercer, noted that small private banks need to acquire economies of scale in niche areas quickly in order to overcome increasing operating costs related to technology and risk and compliance requirements.

“For a small private bank to be profitable on a sustainable basis, it needs to quickly identify a niche segment in which is has a comparative advantage over rivals,” he noted.

That could be anything from having strong DPM capabilities to relationship managers who elicit strong loyalty from their clients.

According to Pathik Gupta, Asia Pacific head at wealth consultancy Scorpio Partnership, a smaller bank can also be more flexible compared with larger banks so transactions can be executed relatively quickly.

“Smaller private banks are also relatively better placed to pay more attention to smaller ticket-size clients,” he added.

With rising costs and tightening profit margins, some private banks are focusing on ultra-high net worth clients, who bring in $5 million or $10 million and above in assets, instead of those who bring in $1 million or $2 million, industry experts have pointed out.