PRIVATE BANKING BATTLES FOR CLIENT´S ASSETS / THE FINANCIAL TIMES

 Private banking battles for clients’ assets
    
As investors get tired of finance without a face, the industry seeks to cater to the emotional need of customers

 by: Yuri Bender

       Geneva old town © Getty


Private banking is emerging from a controversial and colourful history after a decade-long transformation. The fast-digitising industry is becoming modern, transparent and well regulated. It is attempting to shed the image of impenetrable secrecy designed to shield questionably acquired assets from international tax and law enforcement authorities.

But a new battle for clients’ assets is just beginning, underlined by questions about the industry’s purpose. Should private banking just be about the cold-eyed pursuit of financial returns for clients or also the “softer” strategies of philanthropy, succession planning and family networking? Moreover, should bankers restrict advice to customers’ portfolios or extend it to include entrepreneurial interests?

The core skills of private banks need to be market-related, stresses Michel Longhini, chief executive of private banking at Union Bancaire Privée in Geneva, responsible for client assets of SFr119bn (€108bn). His bank defines itself first “as an asset manager for private clients and institutions”.

Further along the lakeside artery of the Rue du Rhône, the story is similar. “We set up Banque Syz [in 1996] because asset management was not being taken seriously enough by traditional private banks,” recalls Eric Syz, one of the city’s best-known private bankers. He was holding court in his office above the Jimmy Choo shoe shop. “Once we understand what a client’s ambitions are, that is where asset management comes in. It is the end-product.”

Things have not always gone well, however. After 2008, private banks were deserted by many clients who had been trapped in illiquid hedge funds, with some exposed to US fraudster Bernard Madoff. With returns difficult to generate in today’s low interest-rate environment, Syz is switching from portfolios diversified across quoted markets into longer-term private equity investments, composed of five to 10 positions.


Eric Syz, one of Geneva’s best-known private bankers


Mirabaud & Cie, another medium-sized Geneva bank, is also moving into private equity, investing clients’ money in smaller unquoted European family-owned companies. “Investors are tired of finance without a face, people without responsibility. We are talking not just about investing money for people, but about their emotions,” says Lionel Aeschlimann, managing partner and head of asset management at Mirabaud.

Particularly among younger clients, private banks are seeking to cater to this emotional need. While the industry’s business model directly links size of assets gathered and complexity of how they are managed to revenues, a new generation of small business founders, still in the process of accumulating wealth, is open to new ideas. They want bankers to establish networks of like-minded, socially and environmentally aware entrepreneurial clients.

“Younger clients are much more receptive to this wider range of ancillary services that a bank can offer,” says Sebastian Dovey, managing partner of Scorpio Partnership, a wealth management consultancy. “But this should not be delivered to the detriment of the bank being able to deliver on the core skill set of asset management.”


Lionel Aeschlimann, managing partner at asset manager Mirabaud



Private banks must move on from pure portfolio management to look more at client relationships, say industry leaders. “If you focus only on a small piece of the action, you get a short attention span,” says Joe Stadler, head of global ultra-high net worth at UBS Wealth Management, personally responsible for nearly SFr599bn of the bank’s SFr2.2tn in invested assets. “To get a bigger attention span, you need to focus on the client’s business, so it’s important that we have an investment bank.”

He also lists the importance of helping the client’s family manage its succession plan and indulge in “passions” such as wine, art or philanthropy as key to the relationship.

Across the way in Zurich’s central hub of Paradeplatz is Credit Suisse, where a combination of investment and private banking is at the core of the bank’s business model. Its strategists target “asset rich, cash poor” entrepreneurs, with corporate, institutional-style needs, competing for new ultra-wealthy clients with UBS, JPMorgan, Morgan Stanley and Goldman Sachs.

The aim is to make private and investment banking so interconnected that clients will find positions “hard to unwind”, Credit Suisse states.

But analysts suggest this might not be the best direction for private banking.

While Credit Suisse says two-thirds of its entrepreneurial clients use the investment bank’s services when selling or borrowing against their business, this does not match industry trends. The “one bank” policy combining private and investment banking has enjoyed only sporadic commercial success for UBS and Credit Suisse, says Zurich-based consultant Ray Soudah, chief executive of MilleniumAssociates. His research shows the majority of private clients do not use their investment bank’s corporate advisory services and those requiring such services prefer to source them elsewhere.

While Millenium has opened its own M&A “advice and execution” service for business owners and entrepreneurs, private banks are setting up internal client networks to connect buyers and sellers of businesses. BNP Paribas Wealth Management has designed a “Leaders Connection” mobile phone app through which clients with wealth exceeding €100m can share details of assets, with the prospect of buying, selling or co-investing.

These institutions are all aware they need to adapt in order to survive, expecting further consolidations on the horizon. Soudah, himself a former private banking executive, expects dramatic change in this sector, probably over the next 12 months.

“Two of the top five global banks will not exist as they are known today,” he says, “either merging with each other or taking over their smaller peers as the growth of operating costs, including developing fintech solutions, forces strategies to be cost, not revenue driven.”