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Taking a quantum leap
As veteran private banker Didier von Daeniken sees it, his banking career of more than two decades was more a matter of happenstance than deliberate design.
Armed with a degree in international relations from the University of Geneva, he had his eye on a career in foreign affairs. But his start as a credit officer at a Swiss bank showed him that banking could open up new worlds of travel and human relations. He hasn’t looked back since.
“Some people are very good at mapping out their career. In my case things happened by coincidence. Banking was fascinating and ultimately I thought I wasn’t made for a career in the public sector.”
Today Mr von Daeniken is Standard Chartered Bank global head for private banking and wealth management, a hot seat by any measure. The group, which reported a swing back into profits in mid-2016, has put in place a plan to nearly double its assets in private banking over the next five years. Private bank assets as at end-2015 stood at about US$57 billion.
In the six months to end-June last year, the group reported an underlying profit before tax of nearly US$1 billion, compared to a loss of US$990 million in the six months to end-December. The group’s overall cost to income ratio improved to about 66 per cent from 78.3 per cent previously.
“Today in the evolution of private banking our asset size is not big. But it’s big enough that we don’t have to worry that we’re too small. We have a clear corporate plan to double our assets in five years, which is do-able. In today’s environment it’s ambitious. But we need to (grow) so that we can make a meaningful contribution to the group.” The aim is to expand assets under management by US$25 billion by 2018.
To support its expansion, the bank is investing US$250 million into building a single global wealth platform. This is part of the group’s US$3 billion investment into technology infrastructure and into “strategic opportunities”.
The challenge of attaining scale is one that occupies private banks in Asia, a landscape that has seen several mergers over the past few years. Entrants have been confounded by higher than expected costs among other factors, which have sorely tested head offices’ commitment.
Mr von Daeniken says scale is something of a moving target, but mostly northwards. “You must get scale right. If you asked me in 2002 what size was needed, I’d say US$10 billion. Then we moved to US$20 billion. Today I think it’s US$50 billion. Whoever doesn’t have that, there is a question mark.”
The sustainable threshold is moving towards US$80-100 billion. “Once banks get to scale, then it becomes a question of technology which lowers the cost to serve. Otherwise you continue to operate at a cost to income ratio of 85 to 90 per cent. So we need a very clear technology plan.”
He says candidly that the bank is some paces behind its competitors in its wealth platform. “We’re not where we want to be. For me, the first is to have straight through processing and automation of all processes. We need another 18 months to be where the industry is.” On digital innovation, he reckons the bank is also “slightly behind”.
Judicious hiring is a key plank of its strategy. “A doubling of size gives us an idea of the quantum of the leap, but not the quality. It really starts with people. We need to bring on board a different profile of bankers. The vintage today is a bit junior. We want to get senior people to join us.
“We know the pool of talent is shallow. It’s a virtual circle if you bring in big names; others will follow.” This year the bank plans to hire 60 senior relationship managers mainly in Singapore and Hong Kong. Over the next five years it aims to have hired a total of 200 globally.
“Some banks want to hire 120 a year. Our plan is to hire fewer bankers – we look for those who have had 12 to 15 years in the industry and have seen two to three market cycles. You don’t really know how to deal with clients unless you have seen two to three downturns.”
He notes that there is “long tail risk”. There is, for instance, a heightened awareness of the need to know clients and their sources of funds. Last year, Falcon Bank was shuttered in Singapore for failures in anti-money laundering controls and improper conduct by senior management.
“We have a fiduciary duty to the board and shareholders that we don’t end up in a mess that damages the bank. We can’t expect a 25-year-old to understand all that. Part of management is to make a conscious effort that we don’t put anyone in a position to make the wrong choice almost by default.”
He says StanChart’s strength lies in its wide and deep Asian footprint. “We’ve been in the region, in emerging markets, Asia, Africa and the Middle East for 150 years. We’ve grown with the countries; many clients grew with the bank.”
Natural internal market
StanChart’s various business lines including retail and corporate banking also offer a “natural internal market” from which to acquire private bank clients. There are some 45,000 corporate banking relationships in the commercial, corporate and institutional banking segments.
The minimum wealth threshold for private banking is set at US$2 million, but this is rising to US$5 million. “It’s difficult to diversify a US$2 million account. We’d like to focus on clients who have US$15-35 million with us. It’s a good sweet spot. These are people who are wealthy enough to have excess cash and the ability to remain calm without having to liquidate the portfolio.”
Mr von Daeniken says he tries to meet clients every week even though most of his time is spent on management. “I find it fascinating, who clients are – their businesses, families and how they became successful. Quite often we have conversations about how they run their enterprises. There is a lot one can learn.”
He is optimistic about Asia’s wealth market, even though there may be patches of slower economic growth. “The market continues to grow. Wealth continues to be created, maybe not at the same pace, but still. We’re positive on India; it’s growing at least as fast as China. Singapore is flat; the Philippines has done very well.
“Most likely private banking will continue to consolidate. Clients here have a large component of cash in portfolios, therefore there is a lot of reinvestment opportunity.
“We can expect growth of 6 to 8 per cent. The financial services industry is likely to grow faster than others; private banking ranks as one of the bright spots.”