A wave of consolidation has been widely forecast for Asia’s private banking industry, but whether this is a healthy development for the market remains open to conjecture.
Just last week Julius Baer announced plans to acquire the ex-US wealth management business of brokerage Merrill Lynch in a deal that sources indicate will double its Asia AUM, as reported. It comes after the Swiss bank announced two strategic alliances to build international scale.
Scorpio Partnership had just penned an article for AsianInvestor noting that large international wealth managers were outperforming smaller players in terms of net new money, income and profitability – pointing to the importance of scale and global reach into growth markets.
But some in the industry view growth through acquisition as a double-edged sword that also causes disruption and instability to the broader market.
Claude Haberer, Asia-Pacific wealth management chief for Pictet & Cie, points to a contrasting issue facing private banks today: decreasing costs globally and what he terms the “gigantism phenomenon”.
He notes there are thresholds below which private banks cannot afford to offer clients a wide range of assets and services, mentioning $100-$200 billion. Pictet has $262 billion in AUM by Scorpio numbers, while Julius Baer estimates it will have around $256 billion post-acquisition.
But Haberer argues that just as important as building scale – and potentially more so given the loss of customer trust in private banks post-crisis – is the ability to be able to service clients with the same kind of personal attention.
“I would argue that once you have reached that [AUM] threshold you have to be careful,” he tells AsianInvestor. “These massive acquisitions where you double your size in one go are the opposite of maintaining a high quality of personal service.”
This, he suggests, is one reason why Pictet has never taken the acquisition route. “Acquisitions are not the only way to grow quickly, they are the answer for managements under pressure to grow,” he says. “When you are listed you have made promises to the market you have to fulfil.”
Haberer links this to what he sees as a troubling development in the industry: the trend among European wealth management units within larger banks in particular to shift to a more broking/investment banking model, saying it equates to high-pressure product pushing.
“From a shareholder perspective it makes a lot of sense, but from a client perspective it is a significant shift in the type of relationship they have with their banks,” says Haberer.
It was a point that sources raised over Julius Baer’s acquisition of Merrill and one which Julius Baer’s group CEO Boris Collardi was at pains to offer assurances over: how to marry a private bank with a brokerage model.
In Asia, clients have relationships with multiple banks and use each of them for different purposes. “The problem is when you have a relationship with a bank and that relationship changes and turns into a broking-type relationship,” adds Haberer.
“Then the interests of the bank and the client start diverging more and more, and what we see today in a lot of cases is this divergence becoming bigger and bigger.”
Haberer acknowledges that economies of scale are important given margin pressure, but questions whether acquisitions really bring savings in the same proportion as growth.
“I would say what is more important is to continue working on your cost-line or to make sure you are able to service your clients and continue to get top-line [growth] because your clients are entrusting additional business to you,” he says.
But while he sees acquisitions as unhealthy in the sense that they create market disruption and instability, he says he welcomes them in the sense that they create opportunities for competition.
Pictet has been building its Asia business organically. It now has 16 relationship managers in Singapore and 14 in Hong Kong, having just added three in the latter: Randy Chu, Annie Yau and Genji Hosono.
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