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Private banks lacking scale exit Singapore
JUST like real estate is about location, location and location, private banking is about scale, scale and scale - it is what's needed to cope with the high cost of the business, say industry players.
Monday's surprise move by DBS Bank to snap up most of ANZ's wealth and retail business in Asia for a bargain-basement price of S$110 million, or 0.5 per cent of the S$23 billion of assets under management, once again hammered home the point that scale is needed to run a private bank.
Over the past two years, eight foreign private banks (ANZ included) have exited or will soon exit Singapore. Of the eight, two were closed by the Monetary Authority of Singapore for anti-money laundering violations. ABN Amro is reportedly the eighth departure, with the Dutch lender soon to sell its Asian private bank.
Both DBS and ANZ, Australia's fourth largest bank, mentioned scale as the reason for the sale. It wasn't that the business didn't turn a profit. It did; for FY16, it turned in a cash profit of A$50 million.
ANZ is not a small player in Asia, and this sale does not signal its retreat from the region, it said. In fact, ANZ regards Asia as core to its strategy of banking large corporate and institutional clients, driven by trade and capital flows, particularly with Australia and New Zealand.
ANZ Institutional Asia employs 1,490 people across 15 markets in the region.
But, as ANZ chief executive Shayne Elliott said of the sale to DBS: "In retail and wealth, although we have grown a profitable business in Asia, without greater scale, ANZ's competitive position is not as compelling."
Tan Su Shan, DBS's group head of consumer banking and wealth management, said Asia continues to clock decent growth rates, so the organic growth outlook for the wealth-management business remains intrinsically intact, despite cyclical volatility.
She said: "For banks looking to create a sustainable wealth-management business here, there are a few things to consider. Firstly, it is the bank's ability to build scale, be sustainable and invest for the future.
"Secondly, banks must be able to serve the local and global needs of Asian clients."
DBS has been aggressively building up its private bank business, timing it nicely with Asia's explosive wealth growth. A joint survey by PwC and UBS last month said that, in Asia last year, a new billionaire was minted every three days.
DBS chief executive Piyush Gupta said that, with Asia growing at 6 per cent, Europe at 1 and the US, 2, "you'd all give a left arm to be in Asia under the current economic conditions".
As Asia is tipped to be the richest region in the near future, private banks in the region need to adapt their business models to meet the growing demand.
Bahren Shaari, Bank of Singapore's chief executive, said: "For instance, with the rising cost of doing business, banks need to achieve scale, so further consolidation is inevitable. In the case of Bank of Singapore, we have enough scale to aspire to be among the top three private banks in our core markets."
But while Asia has the right conditions to attract private banks, it has to be borne in mind that the bulk of the rich are self-made or entrepreneurial; the joint PwC-UBS survey said about 85 per cent of Asian billionaires are first-generation.
This means banks need to offer investment-banking services and access to debt and equity markets for clients looking to expand their businesses. They should not just sell wealth-management products or throw rare-whisky parties, which have become fashionable in some quarters.
A private banker who turned down an offer from a major distiller to host a rare-whisky party said: "My clients are too busy making money to come for the whisky."
Credit Suisse, the third-largest private bank in Asia, decided in a strategic review last year to combine investment banking with private banking.
Francesco de Ferrari, the bank's head of private banking for the Asia-Pacific, said earlier this year: "The business model that is best suited to Asian clients' needs is the integrated bank with private banking as a core business and its DNA, but also strong investment banking and asset-management capabilities."
So if some foreign banks have decided to exit Singapore, it doesn't point to foreign banks beating a retreat from Asia.
DBS' Ms Tan noted that the largest private banks in Asia are, in fact, Swiss or American: "While some foreign players have left the scene, there are several who are still fairly dominant here.
"These are primarily the large Swiss and US and banks who have managed to build scale in their private-banking businesses, either through long-term organic growth or through combining their wealth management business with a retail, corporate/investment banking or asset management business."
UBS, Citi, Credit Suisse, HSBC and DBS are Asia's top five private banks. Julius Baer, Morgan Stanley, JP Morgan, BNP Paribas and Deutsche Bank round up the top 10.
Ms Tan said: "That said, there remains more scope and opportunities for dominant local or regional players like DBS to gain market share as clients here look for customised solutions with a safe and steady name who remains committed to the region and the business."