Soc-Gen Asian private bank back in play

[SINGAPORE] Asia may have the fastest-growing private bank industry and just about the most millionaires in the world, but it remains a pretty tough place to do business and only those with the deepest pockets can make it.

Well-capitalised Asian-based players such as DBS Group Holdings, HSBC and Standard Chartered were yet again named as potential buyers of Societe-Generale's (Soc-Gen) Asian private banking business, first reported to be on the block last month.

Consolidation in Asia's private banking business is likely to pick up as the fragmented industry makes it hard to show profits while paying out the highest costs for experienced relationship managers, said bankers.

"Critical mass and scale is needed," said one.

Soc-Gen's assets under management (AUM) in Asia are said to be about US$13 billion and with staff strength of 400 make it among the smaller private banks in the region.

Last year, Swiss-owned Julius Baer, which has made Singapore its second home, bought over Merrill Lynch International Wealth Management with the aim of having 300 billion Swiss franc (S$416 billion) AUM by 2015, up from 220 billion Swiss francs, with a quarter of that from Asia.

A recent PwC survey on private banking said Singapore and Hong Kong banks' cost-to-income ratios is among the highest in the world, standing at an average of 83 per cent last year. This is expected to fall to 76 per cent this year and 73 per cent next year. Relationship manager costs account for as much as half the cost base.

Asia will have the world's largest number of millionaires as early as next year despite the expected tapering of the US Federal Reserve's stimulus programme, said the Royal Bank of Canada last month. The wealth of the region's millionaires will grow by an annual average 9.8 per cent and reach nearly US$16 trillion in 2015, it said.

The number of millionaires in Asia surged by 9.4 per cent year on year to 3.68 million in 2012, versus North America's 3.73 million.

A Reuters report yesterday said StanChart, DBS and HSBC were among those which have submitted first-round bids for Soc-Gen's Asian private bank valued at US$600 million though it was said that some bids will not be more than US$300 million. All the banks have declined comment including JP Morgan which was reported to be handling the sale.

"DBS' priority is to pursue organic growth opportunities which extend our Asia banking franchise," said a DBS spokeswoman when asked if the bank is open to growth via acquisitions.

"In any inorganic initiative we pursue, we always adopt a disciplined approach and will only do the deal if it fits our strategic initiatives," she said. DBS' AUM from clients with more than S$1.5 million in investible assets was over S$61 billion as at end-June 2013.

One observer not involved in the sale said the interest for DBS would be in getting access to other markets. DBS' three main markets are Singapore, Hong Kong and China. Soc-Gen's clients include those from South-east Asia.

Earlier this week, Rajesh Malkani, Standard Chartered's Private Bank head of North and Southeast Asia, said it's very challenging to make profits on a sustainable basis and there is some consolidation in the industry.

Mr Malkani, stressing that he was not disclosing StanChart's interest, if any, in acquiring Soc-Gen, said: "We are open to acquisitions, both organic and inorganic. We would be willing to pay for a portfolio acquisition and also a large acquisition which fits our footprint."

StanChart made a transformational acquisition into private banking by paying US$860 million for American Express' banking unit in March 2008; that gave it about US$22.5 billion of AUM and 120 relationship managers. Its AUM has grown to US$50 billion since then with US$35 billion from Asia.

In May this year, StanChart made a portfolio acquisition in India by buying part of Morgan Stanley's onshore private-wealth management business there.

Soc-Gen, France's second largest listed bank, has been stepping up its restructuring to cut costs and boost capital. The bank aims to boost its capital to 14-15 per cent by end-2015 from 12.5 per cent at end-June 2013. For the first half 2013, it has managed to save 170 million euros (S$289 million) with 300 million euros as the target for the full year.

Last month, in an update, Soc-Gen said it was combining the private bank asset management with its investment bank.

Soc-Gen in Singapore has two businesses - private bank and investment bank and about 500 staff. Singapore is also the Asian hub for the French bank.