Private Banks Still Upbeat On 2008

Source : The Business Times, January 3, 2008

Sub-prime woes have not changed their expansion plans in this part of the world, private bankers tell CHOW PENN NEE

LOSSES suffered by banking giants over sub-prime writedowns have not dampened the ambitious growth plans of their private banking divisions in Singapore.

Private banks here are upbeat on 2008, saying the wealth management pie will continue to grow strongly in this part of the world. But they expect the industry to be still facing issues such as a talent crunch and market volatility.

Soaring salaries and bonuses, the surge in the number of millionaires and a booming economy in 2007 - the private banking sector never had it so good.

The flip side of this was, of course, a fierce war for talent, with poaching rampant. New players also entered the market, all fighting for a share of the wealth management pie.

The sub-prime meltdown in the middle of the year did not help matters. Banking giants Merrill Lynch and UBS were beset with losses from writedowns on their collateralised debt obligations (CDOs).

The bright side of it all was that the sub-prime woes have not changed private banking expansion plans in this part of the world, private banks told BT.

Swiss bank UBS, which earlier announced $14 billion in losses from the sub-prime crisis, said the bank's growth strategy is still on track.

'Wealth management is UBS's core business and we continue to be strategically bullish,' said Yeong Phick Fui, UBS's head of wealth management in Singapore. 'We will continue to hire along the same rate as previous years.'

She added that UBS has about 200 billion Swiss francs (S$254 billion) under management in Asia Pacific and the industry is still growing. 'No scale down is expected. Our strategy is to continue investing in the business,' she said.

Francois Monnet, who heads Credit Suisse's private bank here, agreed. 'Private banking is strategically a core business for us. It is not something that we will walk away from when the market turns.' The bank added another 100 private bankers in Singapore and Hong Kong last year.

Other private banks say they will still be actively hiring in 2008. BNP Paribas private banking said it is untouched by the sub-prime crisis and is still looking to grow 20 per cent annually. Similarly, Standard Chartered Private Bank said it is still looking to add on 200-300 private bankers in the next 3-4 years globally.

Banks are still on a hiring spree because the number of moneyed folk is likely to rise this year. Singapore is set to continue growing as a private banking hub.

'There's strong GDP growth in this region, we continue to see new IPOs, real estate is booming, companies are making profits, and millionaires will grow in number,' noted Michel Longhini, head of BNP Paribas private banking Asia-Pacific.

Singapore had the fastest growth in the number of high net worth individuals (HNWI) in Asia Pacific, at 21.2 per cent in 2006, and also one of the fastest growing wealth markets in the world, according to a report by Merrill Lynch and Capgemini.

Today, Singapore's role is in global private banking, Mr Longhini added, and growth is not just coming from Singapore, but from South-east Asia and Europe. Added to the fact that Singapore is attracting foreigners who book assets here, more millionaires will be minted next year.

'The growth in millionaires in Singapore will be boosted by Singaporeans, expatriates and global HNWI who come to bank their wealth here,' said Standard Chartered global head of private bank Peter Flavel. As a result of this, private banks will surge ahead with expansion.

'The wealth creation cycle is highly correlated with the markets and economic growth,' said Credit Suisse's Dr Monnet. 'With Singapore's robust economic fundamentals, we expect continued growth in the private banking industry.' Credit Suisse has the largest wealth management operations in Singapore outside of its headquarters in Switzerland.

The hunt for talent, therefore, ranks again among the top concerns for private banks in 2008, as it had been in 2007, the difference now being that banks have mostly done their en masse hiring and are now gunning for quality.

'Today, private banks are much more selective, more quality-based,' said BNPP's Mr Longhini. 'We now know who is good, who is not, and know the price we are willing to pay.' Tan Su Shan, who heads Citi's Private Bank here, agreed. 'Before, we saw frenzied, mass hiring in newcomers (to the industry). Now we see consolidation in hiring.' She added: 'We're also working with the resources we hired and are working to grow our internal talent pool by continuing to train and develop staff.'

The banks are casting their eyes on quality - meaning those who have prior private banking or other banking experience. 'Quality hires will be able to command 30-35 per cent higher salaries,' said Rahul Malhotra, Merrill Lynch's head of global wealth management for Asia-Pacific. 'We're looking for 7 years' experience or more.'

Banks say poaching is less predominant now, except among the new entrants, and most are looking inward at their corporate or investment bankers.

'We see quality coming from within,' said Mr Malhotra. Citi's Ms Tan said they are now looking 'organically' for good people. 'We have hirees from corporate banking and institutional desks such as equity or fixed income, or from private equity, investment banking or research,' she said. 'These people bring with them an institutional level of expertise and professionalism that can only enhance and improve upon the level of private banking in Singapore.'

Another challenge facing private banks this year is the market volatility and managing this tumultuous period for their clients.

'From now to medium term, we're looking at diversification of asset categories for our clients,' said Mr Longhini. Mr Malhotra said the bank is waiting to see what happens in the US economy early this year and looking at 'shifting from fixed income to equity'. 'We are seeing more consolidation of assets into safer types like fixed income,' he added.

The past year saw private banks focus on the wealth transfer theme for clients. In the new year, the private banks say a big focus will be on private investment banking. With the noveau riche earning their wealth through their businesses, private banks say this is where they can step up and help integrate their clients' private wealth with business ventures.

'Asia's new wealth is coming from real estate, services, the professional segment, IT, manufacturing and the energy sector,' said Citi's Ms Tan. 'We want our private bankers to understand what the client does, their wealth creation process, and help manage it.'

At Credit Suisse, Dr Monnet says almost every private banking client is an entrepreneur, 'mostly first or second-generation owners of businesses with their wealth tied to their enterprises and to real estate'. He noted: 'The classical private banking offering no longer serves these entrepreneurs well.' Clients now require their banks to have expertise not only in private wealth management but also in corporate finance such as advising on mergers and acquisitions or on initial public offering (IPO) activities that can help them grow their businesses, Dr Monnet explained.

'We have already seen many cases of our private-banking clients with investment banking needs, be it divesting large shareholdings they have, monetising those shareholdings or having certain hedging needs, financing requirements such as shared-backed lending, aircraft, ship or real estate financing or bringing private equity investments into entrepreneur clients' businesses.'