Squeezing the Global Private Banks By Richard C. Morais The 209 largest wealth management firms in the world boosted their assets under management by 19.7% last year, which means they globally lord over $14.9 trillion in what is estimated to be a $20.3 trillion industry. This increase in high-net-worth clients’ assets also allowed the 209 managers to collectively report a 10.9% jump in income last year, considerably better than the 2.3% increase in income reported in 2012. These are the headline figures from Scorpio Partnership, a London-based data cruncher that will release its full Global Private Banking Benchmark 2014 report in just under two weeks. But its knowledgeable and affable managing director, Sebastian Dovey, has been compiling this global private bank ranking for 13 years, so I called him up to get an advance peek at the big picture. Dovey says UBS is “a nip”—meaning a couple of months away—from being the first bank in the world to have $2 trillion under management. That’s after the Zurich-based colossus clocked a 15.4% increase in assets under management in 2013. Scandals? What scandals? As the recent shrug over Citigroup’s $7 billion fine for mortgage whoopsies illustrates, it appears that clients and investors alike seem to have lost the moral outrage that had them fuming over skullduggery when the financial crisis was at its worst. A moment of reflection is called for. UBS’ $2 trillion figure is not just a watershed moment for the wealth-management industry, but also an astounding development, considering that when Dovey started his list 13 years ago, not a single global wealth manager had more than $100 billion in assets under management. This news should have regulators popping Xanax, for it suggests how much risk is concentrating in an ever-smaller number of major players. Consider, for example, this simple fact: The top 25 banks in Scorpio’s study control 78% of the assets under management among all 209 firms, a 1% increase in market share over the previous year. That Scorpio stat confirms what we had previously noticed in Penta’s proprietary list of the U.S.’s top wealth managers for accounts over $5 million. In last year’s list, we reported that the top five wealth managers in the U.S. grabbed 64% of the asset growth registered by all the top 40 banks (“Top 40 Wealth-Management Firms in America,” Sept. 16). So it’s hard not to conclude that private-banking institutions are mirroring the wealth creation observed generally in society—the richest are getting richer, while the poorer institutions cling by their fingernails. The top 10 wealth management firms in the world are ranked by Scorpio in the table above. Hot on the heels of UBS is Bank of America Merrill Lynch, with almost $1.9 trillion under management. BNP Paribas (another scandal-singed player) and Deutsche Bank both crept up Scorpio’s Top of the Pops, landing spots six and seven, respectively. HSBC, pulling out of “noncore” markets, fell from sixth to eighth place last year, and was one of the few banks to actually clock a 4% drop in assets under management. Moving in the other direction was Switzerland’s Julius Bär, which grew almost 41% last year and is now ranked the 12th largest in the world, mainly because of its acquisition of the wealth-management unit of BofA Merrill Lynch’s international operations. Which is another big trend in the industry, says Dovey. U.S. private banks are shedding overseas assets and retrenching to homeland shores. But for all of the glowing growth figures, Dovey warns that below the surface of the top line, all is not quite well with the private banks. While income increased 10.9% last year, costs grew 14%, which means the industry’s key cost-to-income ratio rose from 80% in 2012 to 83% in 2013. Another worrying bottom-line trend: Ordinary profits that popped 5.3% the year before, increased just 1.7% last year, suggesting it’s once again getting tougher to make a buck out there. The Asian market is a big reason for costs getting out of control. While Asia is a major driver of growth for global banks, it’s also a major driver of costs, particularly the salaries of handholding front-line private bankers. Cost/income ratios in Asia are in the ghastly 85% to 93% range, though Dovey cautions that reporting is inconsistent across the region and it’s sometimes hard to draw direct comparisons between the banks. But there are enough data out there to reach the following conclusion: Expect Asian growth to come at ever-greater costs. Rich private-banker salaries show no sign of abating
Posted on: Mon, 21 Jul 2014 04:18:59 +0000
Trending Topics
Recently Viewed Topics
© 2015