A fresh start

By Rodney Diola

Private banking has been an uncompromisingly uncomfortable spot in the last three years. The global financial crisis created what had seemingly been an unbridgeable rift between relationship managers and their portfolio of high net worth individuals (HNWIs). As the crisis took hold and clients saw their wealth erode, private bankers wondered openly how long it would take for the rift to heal so they could start rebuilding.

While the situation looked better for a slew of onshore private banking operations in China and India – where HNWIs had been largely shielded from high-stake speculation in the market prior to the major bust in 2008 – for private banks in markets such as Hong Kong, Singapore and Korea – where HNWIs suffered substantial declines in their net worth from securities that had turned worthless – the picture was grim. The number of millionaires in Hong Kong and Singapore shrank the most – denting the industry’s reputation – and started to recover only last year, although they are still far below the 2007 level.

Institutionalizing private banking

As Citi’s Asia-Pacific Private Bank CEO Aamir Rahim himself admits, the trust in the industry had been compromised during the crisis and there was a need to reinvent the business model so as to re-engage the HNWIs in the region.

When he joined the private banking arm of the bank in September 2008 (Rahim used to run Citi’s fixed-income investment banking team in the region), he realized the business needed some changes to retool itself for the future. High net worth individuals were in­creasingly demanding institutional-like service, so Rahim reached out to the Citi’s institutional banking franchise to improve the private bank’s product slate.

As Rahim explains it, the private bank needed to remodel both because the interest of HNWIs slipped as a result of the uncertain market conditions and because of the sharper competition from hungrier players entering the private banking space. Citi claims that it was already the largest wealth manager in the Asia-Pacific with US$165 billion in assets under management, and that it was anxious to become “the benchmark for private banking in the future”. Bringing an institutional flavour to the bank was one strategy to achieve this, but Rahim decided to restructure compensation too. The old commission structure went out the window and both bankers and investment specialists are now judged on a scorecard, which comprises a comprehensive matrix to determine how clients are being served.

In addition, Citi refined its private banking client segments to improve client servicing. Before the crisis, it was not uncommon for the franchise to have a diverse spread of clients with varying levels of assets, Rahim recalls. “It was dealing with customers worth as little as US$1 million to US$20 million and with those worth US$100 million to US$1 billion. Citi has put in place a comprehensive wealth continuum that serves clients with assets from US$1 million to US dollar billionaires. Its private bank focusses on ultra-HNWIs with a net worth of US$30 million. The fact that rich Asians have been aggressively building their wealth has required the different approach,” Rahim points out.

“Our client segment is clearly defined now and we have been able to build a differentiated and high-end private banking model to serve our clients while keeping expenses under control. Clients are looking to expand their wealth across the globe and we are leveraging our globality to provide them best-in-class service.”

Rahim describes the new approach as a win-win situation for the bank and the clients: “We have found that the new model works better because clients have gained access to the best Citi has to provide, which in turn strengthens our relationship with them.”

The traditional model of private banking is clearly falling by the wayside and the stereotype of the old, cigar-chomping conversationalist type of private banker has been relegated to history. “If you go out there and talk to tycoons, you had better make an immediate impact,” comments Rahim. “They have limited time and so you have to make a pitch that will command their attention.”

What has helped to increase the attraction of Citi’s private banking services has been its ability to help clients in their IPO and M&A activities or to provide them with a good introduction to countries where they see strong potential but where they are unfamiliar with the local culture. Private bankers do not relish being blamed by their HNWI clients for not having properly advised them on the danger from too much exposure in certain types of asset classes. That explains why they keenly emphasize how much attention they devote on providing the right risk management tools. The new compensation structure too reduces product pushing as the scorecard is designed to gauge how well clients feel their interests are being served.

Staying true to the business ideals

J.P. Morgan Private Bank too has been consistent in its moves to de-risk and deleverage. In an interview with The Asset, its new regional CEO for ultra-HNWIs emphasizes that the lessons of 2008 cannot be forgotten. That explains, notes Andrew Cohen, why we see to it that clients have sufficient risk management tools and advice at their disposal to avoid repeating the mistakes of 2008.


Dana: Clients deserve not to be saturated with products and solutions
The head of the Hong Kong and North Asia markets of BNP Paribas Wealth Management feels that private banking in general has done well, despite the crisis. Thierry Dana, who moved to Asia in September 2009, admits that private banking has become more demanding as client needs have grown and as complex products in the industry have proliferated in the last couple of years.

Dana is dismayed at the number of private banks that are pushing products without making sure that the client understands what those products are. “Clients deserve to receive sound advice and not to be saturated with products that come out every other day.” He acknowledges the growth of the competition, the arrival of hungry new comers which “might not exactly mean the delivery of better private banking services”.

Dana is a strong believer of values. “One needs to build one’s strategy based on values – individual and corporate.” The challenge, he says, is to better manage the risk facing clients while staying true to the ideals of the business. His bank aims to build long-term relationships, where clients seek out bankers for their responsiveness and effectiveness. “They want speed from us when we react to their demand, so we need to have the capability to immediately assess the impact of whatever situation or development and identify the investment opportunities that are available to them. This explains,” he adds, “why BNP Paribas always works to enhance the efficiency of the decision-making process.

Dana says his experience as a private banker around the world, and especially in Latin America, has prepared him for the challenge of nurturing the franchise in Asia. “Wealthy Asians and South Americans, Brazilian clients in particular, have a lot in common. They don’t suffer from boundaries or constraints on how to operate and they want to invest and diversify the wealth of their families.” In the Asia-Pacific region, Dana explains, BNP Paribas chiefly targets entrepreneurs, as they have demonstrated an eagerness to work with a good partner bank to help them grow their wealth.

Asia is different

Private banks can count themselves lucky to be in Asia where it seems the only way a private banking franchise can fail is to be clueless about the phenomenal transformation that has taken place in the last five years. The difficult economic conditions in developed markets such as the US and Europe are driving a host of private banks to zero in on the region, where the number of millionaires is growing steadily. Asia, however, poses a different challenge for private bankers, in particular for those concentrating on offshore banking for the region’s wealthiest.

Rahim says Asia is different because the accumulation of wealth at every level is so new. Unlike in Europe and the US, private banking in Asia is about dealing with issues facing first generation HNWIs. “For the most part, the ultra-HNWIs are still building their fortunes and are in aggressive mode when it comes to investing. In addition, their investing is truly going global.” Another marked difference is that approximately 80% of corporates in Asia are controlled by families, whereas in Europe and the US the number is only 15 to 20%. “This translates to a significant difference in how you serve the people in Europe and in Asia.”

The potential generational transfer of wealth is one reason why Citi private banking runs its ‘Next Generation of Wealth’ programme, which started in Asia in 2003.

The programme is designed to impart financial knowledge and soft skills to scions of wealthy families and this year’s event saw 100 young adults gather in Hong Kong for the occasion.

That the potential of the region has grown is reflected in the movement of talent to Asia. A few months ago, Cohen of J.P. Morgan moved from California to Hong Kong to head the group’s Asia-Pacific business for ultra-HNWIs. Swiss banking behemoth UBS continues to lose talent to its competitors – who admit that the bank remains a formidable private banking presence in the region and across the globe, even if it has been set back as a number of its executives have been poached. The most recent is Michael Benz who is joining Merrill Lynch Wealth Management next year to become its head in the Asia-Pacific.

His departure follows the defection of other senior UBS private banking officials to rivals such as Credit Suisse and Julius Baer. Benz replaces Antony Hung, who has retired. Wilson So, formerly head of North Asia Global Wealth Management, now serves on an interim basis as head of the wealth management unit.

The departure of Benz came as a surprise as, only early this year, he had assumed responsibility for the bank’s newly created investment products and services unit in the Asia-Pacific.

Citi too has been aggressively hiring. Rudolf Hitsch from Goldman Sachs takes over the Hong Kong-based offshore China role. Hitsch is responsible for Citi’s offshore China private-banking franchise and reports to Aamir Rahim in Hong Kong. His appointment follows that of Debashish Duttagupta, head of investments in the Asia-Pacific and BK Jung, head of South Korea.



The genie of the lamp
HNWIs expect bankers to fulfill all their wishes

The lifestyle of the rich and famous is different from yours and mine. “They travel around the world when they are hungry,” says one private banker who narrates how a client in Singapore flies his family to Hong Kong in his jet to have dim sum at The Peninsula in Kowloon. To be super-rich is to have your private banker at your beck and call to fulfill all your wishes – even to the point of actually forking up the funds to sustain your inimitable lifestyle – something akin to having the genie of the lamp.

“What they are looking to have is a high level of service and high-quality ideas,” says one private banker whose services are so much sought after by the tycoons that he is invited to weekend dinner parties to get closer to the family.

The services availed can go from helping them network with generals and politicians in the country where they are building a factory or it could involve the mundane task of helping the client’s children get into a US college and find suitable accommodation.

“They don’t call to check whether they can rent an apartment. Instead they ask me how they can buy a brownstone and that will cost them something like US$10 to US$20 million. Then they will ask us if we can finance them and we usually do.”

Recently, mainland Chinese clients wishing to do business in Africa have been some of the more avid users of such service, asking to be introduced to various important people, such as the CEO of the largest company in a country, the politicians or the central bank governor.

The banker says offering those types of services has become an important part of their work, considering that they are servicing mostly entrepreneurs with multi-billion dollar empires, often too busy to attend to the needs of their families.

The wealthy never run out of options. While the recent global financial crisis might have made them think about the transience of wealth or their vulnerability to another meltdown, they are unlikely to get affected by any economic cataclysm, no matter how bad it gets.

A recent Credit Suisse Wealth Report finds, for instance, that in spite of a decade of near zero real returns on equities, several equity bear markets and the collapse of housing bubbles, global wealth has risen by 72% since 2000. Strong economic growth and rising population levels in emerging nations have been important drivers of this trend.

The head of the wealth per adult league table is dominated by smaller, dynamic economies such as Singapore, Switzerland, Norway as well as France and Australia. Argentina, Japan and Iceland are among the laggards. Notable cases of emerging wealth are found in the Czech Republic, Slovenia, Chile, Malaysia and South Africa, while “frontier” wealth is evident in Colombia, Indonesia, the United Arab Emirates and Kuwait.

The report notes that wealth is unevenly distributed with the bottom half of the global population possessing less than 2% of the global wealth. In sharp contrast, the richest 10% own 83% of the world’s wealth, with the top 1% alone accounting for 43% of global assets.