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Staying the course in choppy waters
- Bassam Salem, Chief Executive Officer, Citi Private Bank, Asia Pacific
- Tan Su Shan, Group Head of Consumer Banking & Wealth Management, DBS Bank
- Ong Yeng Fang, Managing Director and Head of UOB Private Bank
- Francesco de Ferrari, Head of Private Banking Asia Pacific and CEO Southeast Asia, Credit Suisse
- Edmund Koh, Head of UBS Wealth Management Asia Pacific
- Didier von Daeniken, Global Head of Private Bank and Wealth Management, Standard Chartered Bank
- Bahren Shaari, CEO, Bank of Singapore
Moderator: Siow Li Sen, The Business Times
Question: 2016 first half has been volatile, to say the least, how did it affect your asset gathering?
Bassam Salem: Generally, the equity business has been affected by the high volatility which has been the backdrop for the first half of 2016. Many have sat in the "fear box", choosing inaction. However, this has not been the case for all the countries across the board. China appears to be the most affected while activity in the other countries continues to keep pace. For the most part, the first half of this year has been mainly about capital raising/asset gathering as a result of client acquisition and clients moving more assets over to us for account and relationship consolidation.
Tan Su Shan: We are seeing a trend of a flight to safety and stability especially in volatile times. Asset gathering momentum remains strong for financially sound banks like DBS. As of May, our net new money after exclusion of erosion caused by market activity has grown by 5 per cent since December 2015.
Ong Yeng Fang: As at the end of 2015, UOB wealth management's assets under management, which includes that of our private bank, grew to S$85 billion, up 77 per cent from five years ago. Income for our private bank alone grew 48 per cent year on year in 2015.
UOB's considered approach in managing its business has largely contributed to its success in navigating challenging economic cycles, while delivering shareholder value. UOB continues to focus on the core fundamentals - ensuring balance sheet strength and building capabilities for the future. Our Private Bank, which is an integral part of the bank, has benefited from this discipline. Especially with what is happening in the markets now, clients want a strong and safe bank that they can bank with.
While 2016 looks set to be another difficult year, we continue to see opportunities in adversity. Our fundamentals are in good stead and our approach has always been with a long-term view. For it is at times such as these that UOB's innate conservatism plays to its advantage and this measured approach enables us to stand on firmer ground and to withstand the turbulence that we are facing now. Our success will continue to lie in our sound investment strategies, the rigour of our market analysis, the calibre of our people and the industry knowledge of our client advisers. With on-going market volatility, our key focus will be on helping our clients protect their assets and diversify their risks.
Francesco de Ferrari: Despite the challenging first quarter environment, Credit Suisse Asia Pacific division (spanning both Private Banking and Investment Banking) delivered a strong performance with an adjusted return on regulatory capital of 20 per cent.
Revenue performance in our private banking business in Asia in Q1 2016 stayed resilient at 300 million Swiss francs (S$412 million), with strong client activity particularly from ultra-high-net-worth entrepreneur clients. Total assets under management came to 150 billion francs at end Q1 2016.
Credit Suisse is committed to further growing our Asia-Pacific franchise, and we continue to attract quality assets and relationship managers (RMs) to our platform, reflecting continued momentum in executing our strategy. We have added 40 RMs since Q4 2015 and 100 since Q1 last year, ending Q1 2016 with 630 RMs. Net new assets from ultra-high and high-net-worth individuals totalled 4.3 billion francs in Q116, increasing at an annualised growth rate of 11 per cent, driven by broad-based inflows across market areas, productivity of RMs, and strong collaboration across Private Banking and Investment Banking particularly for our ultra-high-net worth clients. This illustrates the quality of our customer base and the strength of our relationships as well as the increased availability of capital to lend.
We are mindful of persisting challenging market conditions when implementing our investment programme. In that context, we continue to seek efficiencies while executing on key initiatives in the areas of client coverage, platform development, risk management, compliance and infrastructure.
We have consolidated financing capabilities across business divisions in the Asia-Pacific to provide tailored solutions to our clients as there is strong, quality demand for financing solutions. We are making strategic investments across our core and digital private banking platforms as well as investing to further strengthen our compliance and risk functions to support our business ambition and meet our regulatory requirements. We continue to take a disciplined approach to managing our cost base and want to generate quality, profitable and compliant growth in the Asia-Pacific, combined with well controlled risks.
Edmund Koh: Despite the challenges in the market, UBS Wealth Management Asia Pacific delivered solid first quarter results with 266 billion Swiss francs in invested assets and 8.8 billion francs in net new money - the highest quarterly inflow since 2008.
Didier von Daeniken: Markets have been challenging in the first half of the year, but we have kept close to clients and have achieved continued momentum in net new money and AUM in our key markets. US$500 million was added in Q1 2016. We have a strong base of commercial clients and some of the new asset growth has been driven by an increase in referrals between the commercial and private bank. May was our record month of referrals since the inception of the programme and more and more of our commercial banking clients are interested in and benefiting from the services we offer in wealth management.
Question: With investors in risk aversion mode, growing revenues must be a challenge, how is your bank dealing with this?
Bassam: In every economic environment, there are always opportunities. Our clients also understand that along with the volatility comes dislocations and many are savvy about exploiting those. Our goal is to leverage our network to help our clients take advantage of unique opportunities. Many of our clients are looking at private equity and real estate as two areas of interest and we have been able to provide access through a variety of diversified managers, structures and geographies. In addition, our clients have also taken the time with us to analyse their portfolios and restructure and diversify as appropriate.
Su Shan: Revenue stream has been affected by poor market conditions as clients have been in risk adverse mode. However, we have been busy with other important functions below to help clients plan for their needs:
- asset reallocation in the face of rising volatility and low rates;
- wealth structuring and planning for succession; and
- legacy building and protection for loved ones.
Edmund: Periods of volatility like what we are going through right now reiterates how important diversification is. Diversified portfolios are less likely to be impacted by market volatility, and most of our discretionary portfolios which are largely balance portfolios have withstood the current period of volatility rather well.
Didier: With each phase of the economic cycle, we will see investors go through either an increase in risk appetite or risk aversion. The key is staying close to clients through these cycles, and to be able to ensure that their needs and financial objectives are front and centre for us.
Bahren Shaari: Market volatility has not affected Bank of Singapore's attraction as a trusted adviser. Despite a volatile first half in 2016, we have been able to gather assets on various fronts. Revenue linked to AUM, such as from discretionary portfolio management, is much less affected by market volatility. We have been successful in growing managed investment solutions over time and this helps stabilise revenue. Our AUM for managed investments grew 10 per cent in the first half of this year. Over the market cycles of the past six years, our mandates posted compounded asset-weighted returns averaging 5 per cent annually.
We kept a lookout for good entry points for long-term opportunities. For example, at the start of the year, we believed markets were too pessimistic and we launched an Asian balanced income fund, focusing on income generation through fixed income, dividend-focused equities and derivative strategies. The fund gathered about US$150 million in assets.
Our clients continued to demonstrate their trust in our track records and expertise in the field of private equity (PE).
- We offered our clients the Blackstone Total Alternatives Solution, availing alternative investment opportunities across Blackstone's PE, real estate, credit and opportunistic platforms and raised more than US$170 million.
- We recently partnered another top-tier global PE manager to offer growth investment opportunities in the innovative technology space and have raised close to US$200 million.
Question: Still, some banks remain in growth mode, either via organic acquisitions and/or hiring even more relationship managers. Why?
Bassam: There is certainly a lot of news about banks hiring. However, I am not sure if, in fact, this represents a net increase of bankers. I believe there is a great amount of hiring by some players desperate to grow coupled with a number of bankers moving from bank to bank not unlike a merry-go-round.
In many cases, this type of hiring has led to an increase in costs due to high premiums and inflated titles being offered. This will only contribute to these institutions' deteriorating cost income ratios which, as we have witnessed, has and will continue to lead to exits of big and small names from the industry. This will continue as long as some come in thinking they can succeed where others have failed unless they change their approach and understand that the business is not about overpaying for talent. In fact, for the business to be truly sustainable, it is very much about balancing the needs and interests of a number of key stakeholders. At Citi, we believe that it is extremely important to take into consideration and satisfy the concerns of five stakeholders: clients, employees, shareholders, regulators and the communities in which we operate.
Su Shan: Wealth management is intrinsically a good business but you need to build scale, sustainability and expertise in order to be profitable for the long term. While costs continue to rise, private banks need to find new ways to reduce their cost income ratios, either by adopting new technologies or by improving productivity through training and skills building. The use of AI, automated wealth management tools and even a shared utility for some shared services for the sector in the future will help in creating some cost synergies.
Yeng Fang: Despite the challenging business and economic environment, the Asia-Pacific still has a fast-growing number of wealthy individuals, according to latest reports. The region is set to be a key contributor to global wealth which is expected to reach US$100 trillion by 2025. This presents significant business opportunities for UOB Private Bank. Together with the advantage of tapping UOB's strong regional franchise and client base, we are in a solid position for expansion.
Francesco: Managing the expanding wealth pools of Asian economies remains an attractive and rewarding business with secular growth potential, but only if banks can get the key elements right in a rapidly evolving regulatory, competitive and cost environment. It is estimated that more than 80 per cent of the region's new wealth is generated by first or second generation entrepreneurs. An estimated 85 per cent of all businesses in the region and around half of the listed ones are family-owned.
These economic and wealth trends as well as the continued consolidation of the private banking industry in Asia in recent years are a clear reminder that to succeed, wealth managers need to get a few key elements right.
The most important success factor for private banks is to have the right business model that can effectively serve the current and future generation of entrepreneur clients throughout their entrepreneurial lifecycle of starting their business, to be able to provide these entrepreneurs with integrated wealth management and corporate finance solutions for both their corporate and personal needs; and for the private banking business to be able to reach the scale to generate profitable growth consistently and sustainably over the longer term.
Edmund: The wealth management business requires ongoing investments in the business, its people and its infrastructure for the long term. We expect Asia to remain as the growth engine for onshore markets both for the industry and for UBS Wealth Management.
We have the economies of scale to invest in the region and we intend to continue strategically expanding our scale and footprint in the wealth management business in the Asia-Pacific. Currently, Singapore and Hong Kong are our two key booking centres in Asia. Moving forward, we expect the domestic businesses to become increasingly important and we have exciting plans for China, Taiwan and Japan. Our recent milestones in the region include the openings of a new branch in Shanghai in March, our second ground-floor presence in China and, in April, an office in Kowloon, Hong Kong. The Kowloon office is our first outside of the Central Business District.
Didier: Private banking remains an important business given the opportunities generated by wealth creation and growth, especially across the Asia-Pacific, Middle East and Africa. While emerging markets have been impacted by much volatility in the first half of 2016, the region remains one of much potential. The most recent World Wealth Report reported that the Asia-Pacific has edged past North America in 2015 to become the region with the greatest number of wealthy people, with the HNW population growing by 9.4 per cent in 2015 to reach 5.1 million. The region also holds the most amount of wealth globally at US$17.4 trillion.
Standard Chartered remains in growth mode to capture these opportunities, and we are targeting to grow our RM population by 80 per cent by 2020. We are looking to have more than 650 RMs in the key financial centres of Hong Kong, Singapore, the UAE and London. We are also investing US$250 million to create a single global Private Banking and Wealth Management platform, which will enable us to improve both the banker and client experience while better capturing the opportunities across our footprint.
Bahren: As wealth in Asia continues to expand, with many tipping Asia to be the richest region in the near future, the demand for professional managers to manage HNW wealth will similarly grow. Private banks in this region therefore need to adapt their business models to meet the growing demand.
For instance, with the rising cost of doing business, banks need to achieve scale, so further consolidation is inevitable. Business will move to larger companies and smaller players find it harder to offer the range of products and services that the region's rich are looking for. Wealth managers with less than US$30 billion in assets under management may find it hard to sustain operations. So while wealth is growing, in an environment where revenue is challenged and costs keep rising, only banks with critical mass can offer the variety of global products needed to thrive.
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.
Clients are also looking for alternatives to traditional private banking hubs and this is where Asian private banks like Bank of Singapore can play an important role. Being located in this part of the world, Asian private banks are well-positioned to better understand the market, the culture, and the risk profiles. Having domestic presence here also means speedier response to clients' needs, especially if they have business interests in Asia.
With our strong private banking platform, Bank of Singapore has over the past few years grown to the current robust private banking scale of over US$57 billion.
We announced our acquisition of Barclays' wealth and investment business in Singapore and Hong Kong. The additional volume of business from Barclays WIM will help to further deepen our presence in our core Asian markets, including South-east Asia, Greater China and the Middle East, namely the Gulf Cooperation Council countries. We are focused now on working towards the completion of the transaction, expected to be towards the end of this year. Our priority is on ensuring that the integration is smooth and that we support the needs of our clients, both existing and new, while enabling the continued career development of our colleagues.
We will continue to work towards achieving organic and sustainable growth. As and when acquisition opportunities arise, we will evaluate them based on whether they are a good fit for our growth strategy. We will continue to focus on having organic growth as part of our long-term strategy.
Seeking growth is a given but what is important is to achieve quality growth by hiring relationship managers and, more broadly, employees, who share the bank's philosophy of quality of advice and superior client experience.
Costs will continue to increase because of regulatory requirements and continual investments in the platform, to meet clients' expectations in the digital space, for instance. So growing the asset base is necessary to maintain profitability.
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