Swiss private bank UBP has its sights set on partnership deals in Asia for both its private banking and asset management businesses, following its agreement to buy Coutts International.
Agreements with local banks are a possibility, UBP’s global head of private banking told AsianInvestor, with institutions keen to utilise foreign expertise.
And in the industry as a whole, even more private banking acquisitions are now expected in Asia as the sector consolidates and looks to cut overheads.
Michel Longhini, global head of private banking at UBP, was in Hong Kong this week to meet staff of Coutts International, the global private banking arm of Royal Bank of Scotland, for the first time. Last week UBP announced the purchase.
While acquisitions are not on its radar at present, Longhini was not ruling out this option if opportunities present themselves.
However, the focus is on the completion of the Coutts acquisition and on a partnership model for growth in the region, said Longhini.
“We see markets are consolidating in Asia,” he said. “We are a consolidator by nature and we have been active in the industry for a few years. This one [the Coutts deal] is a real milestone for us, of which we want to dedicate fully.”
“It is not a priority to buy but if the market gives us the opportunity, we will look at it. But we may have partnerships. The bank has been entrepreneurial in its approach,” he added, referring to the partnership it had forged to expand its asset management business in Asia.
Earlier this year, the firm opened Shanghai-based UBP Investment Management in partnership with the staff it hired, shunning the usual joint venture or WFOE (wholly foreign-owned enterprise) path to establish an office in China. The Shanghai office is focused on developing Chinese equity and fixed income investment solutions for institutional and high-net-worth individuals.
In private banking, Longhini is open to the possibility of entering into agreements with local banks, in a similar fashion to Lombard Odier’s deal with Kasikornbank last year.
“There are lots of institutions in Asia who are looking to develop expertise in private banking or asset management. We can certainly find opportunities in these areas,” Longhini noted.
On the integration of UBP and Coutts International, Longhini expected minimal staff redundancies in Asia given there was not much overlap in their operations.
UBP entered the Asian market about five years ago. While it has grown since then it has remained a small operation with less than 50 staff. It has a banking licence only in Singapore. Meanwhile, Coutts has been in Asia for 20 years with 500 staff in Hong Kong and Singapore, where it has acquired banking licences. Coutts' assets under management for the end of 2014 was £28.3 billion ($41.9 billion). In a recent top 20 ranking of Asian private banks, Coutts was ranked No 19 with $17 billion in AUM from Asia.
Longhini said the acquisition clients and staff. The Coutts brand and the Coutts banking platform were excluded. Coutts will be rebranded to UBP and the UBP platform will be deployed.
UBP is looking at a target operating model to be in place by the middle of this year. By then, it will be clear who will lead Asia under the merged businesses. Michael Blake heads up Coutts in Asia as general manager, while Stephan Repkow, head of UBP in Asia, resigned in early March, as reported.
The sale of Coutts International, which follows RBS’ decision to create a UK-focused bank, includes business managed from Switzerland, Monaco, the Middle East, Singapore and Hong Kong, and assets under management of more than SFr30 billion.
UBP said the acquisition represented a major step forward in the bank’s growth strategy, enabling it to both broaden its wealth management activities and to further its global reach. The acquisition is targeted for completion by next year, and will boost UBP's client base in Asia, a particular focus for wealth managers. Reports said it will add around SFr30 billion ($31 billion) to UBP's assets under management, lifting Asia to account for up to a quarter of the total from less than 10% now.
UBP’s move represents the fourth private banking acquisition in Asia in recent years.
The other purchases were: OCBC’s acquisition of ING Private Bank, which saw the birth of Bank of Singapore in 2009; Julius Baer’s acquisition of Bank of America Merrill Lynch’s international wealth management business in 2012; and DBS’s acquisition of the Asian private banking business of Societe Generale in 2014.
More acquisitions are expected. “The industry is certainly going through a consolidation phase,” said an industry observer. “Multiple drivers are at play including an increase in regulation which increases cost of doing business, clients are getting smarter and putting margin pressure on private banks, and the rise in competition among private banks.”
“In all, this translates into high cost-income ratio that makes running a private bank in a profitable manner more challenging. Like all businesses, a successful private bank needs to achieve sustainable profitability to deliver good ROE to their ultimate shareholders.”
However, he described private banking as ‘still a shining star’ which was going through a process of restructuring in order to become leaner to more effectively deal with current industry economics. These reforms include lower pay and bonuses, and the use of technology to reduce back-office costs.