Private banks' strong finish to 2019 sets base to push into new year

Singapore

STRONG asset markets and portfolio management services, coupled with products that promise higher yields, have helped to boost net inflows for private banks in 2019, providing a strong base to push into 2020.

The year has turned out to be a record year in terms of inflows and assets under management (AUM) for most private banks. The data they furnish is up to end-September.

With markets still climbing, despite the ongoing cloud of the US-China trade war, private banks are set for a strong finish to 2019. The growth is underpinned by strong wealth creation among the region's entrepreneurs, and the expected inter-generational wealth transfer set to take place over the next two decades, where according to Wealth-X, nearly US$2 trillion is set to change hands in Asia.

The performance is a far cry from the gloom that enveloped markets at end-December 2018 when almost all asset markets ended in negative territory. Markets have since rebounded strongly, thanks to the Federal Reserve's pivot from a tightening bias to a dovish stance supportive of growth.

UBS, for instance, reports strong Q3 results for Asia-Pacific, with invested assets hitting a record high of US$419.6 billion. Net new money also hit a record US$28.4 billion in the nine months to end-September, compared to US$16.6 billion in the same period last year. UBS's head of global wealth management (South-east Asia) Raymond Ang says: "Given the volatile markets, our clients have benefited from diversification and professional portfolio management." In Asia-Pacific, UBS achieved US$2.6 billion in under-contract sales volume in Q3, up 73 per cent compared to Q2 2019.

Credit Suisse also reported record AUM for the region of CHF222 billion (S$306.8 billion), and net new asset inflows of CHF10.4 billion for the first nine months. Benjamin Cavalli, Credit Suisse head of private banking, South Asia, said the bank saw record net interest income and higher transaction based revenues. Mandate penetration and volumes were at record levels.

DBS group head of wealth management and consumer banking Sim S Lim said: "Despite the challenging environment, we're glad to have churned out a robust set of results for 2019." DBS's wealth AUM rose 9 per cent at the nine-month mark to reach a new high of S$241 billion. Wealth management income comprised some 21 per cent of group income, compared to 13 per cent in FY15.

DBS has set its sights on raising its wealth business' AUM to US$300 billion by 2023, a compound annual growth rate of 7 per cent.

Bahren Shaari, Bank of Singapore chief executive, said BOS registered "strong momentum" despite market uncertainties. AUM rose 5 per cent to US$110 billion, underpinned by sustained net new inflows. "Our clients continue to have confidence in our solutions."

Almost all the bankers, however, point to clients' nervousness over the markets, given the extended nature of the bull run and the ongoing uncertainties. So far year-to-date (up to Dec 19), the S&P 500 has gained over 30 per cent; the Nasdaq nearly 34 per cent; and the MSCI All Country World Index about 23 per cent. Global bond indices have also been relatively rewarding. The Bloomberg Barclays Global-Aggregate Total Return Index has returned over 6 per cent.

Credit Suisse's Mr Cavalli said: "Investors are sitting on very significant gains, and some might think they have not invested enough. The market is treading a fine balance between concerns over valuations and the fear of missing out on a future rally."

Didier von Daeniken, global head private banking and wealth management of Standard Chartered Bank, said: "The main concern we hear from clients is how long can this economic expansion last especially against the backdrop of significant political and geopolitical concerns. Our sense is that the central-bank pivot back to supporting growth, as well as an increased focus on fiscal policy, could extend the recovery well into 2020."

He expects markets to do well early in 2020, although volatility could pick up. StanChart, he said, posted a turnaround year. Income grew 13 per cent as at Q3 with strong net new money inflows.

Philip Kunz, HSBC head of global private banking (South-east Asia), says despite the uncertainties around trade, Asean "continues to hum with entrepreneurs still optimistic on their business prospects". "Our conversations with clients are supported by our recent HSBC Navigator research which showed that Asean is one of the most bullish trade blocs in the world." He said the bank has started to see "green shoots with an increased uptake in performance". In the first nine months, the Singapore booking centre more than tripled its net new money on a year-on-year basis.

HSBC's ambition is to double the combined private and retail banking total wealth business, and add over 400 customer-facing staff over five years. It is looking to raise Singapore's headcount by 24 per cent with a "targeted hiring strategy to attract experienced and diverse talent".

Citi Private Bank's South Asia head Jyrki Rauhio says strong new client acquisition contributed to net new inflows, "especially as the nature of our target market has changed, becoming increasingly institutional". Clients, he adds, are looking for platforms with "deep geographic reach and capabilities that go beyond traditional private banking".

Meanwhile, the outlook for 2020 is broadly optimistic, but BOS's Mr Shaari cautions investors to rein in their expectations. "Over the next few months we see more upside for markets as investors receive increasing confirmation of a growth recovery alongside improving incoming data and the likely completion of a US-China phase 1 trade deal."

But there are challenges, he says, from "late cycle forces" such as pressures on corporate margins and high debt levels. Valuations are another concern as they are near fair value and higher than the average levels seen in similar recovery rallies in the past 40 years.

Bhaskar Laxminarayan, Bank Julius Baer chief investment officer, says global equities still present the best risk reward. "Recession risk is something on clients' minds much more so than what we saw in end-2018. Here again we feel that recession is not a 2019 phenomenon and is likely to be pushed down the road given the data we are seeing."