The sale of part of ABN Amro's private-banking business to LGT shows just how tough business has become in the industry and how difficult the banks find it to make a viable living – even in a growth market like Asia.
Barclays' private bank in Asia, Societe Generale's private bank in Asia, now the regional division of ABN Amro: the private-banking units don't fit the business of their owners anymore because they are either unprofitable or simply no longer in demand.
So that's why LGT of Liechtenstein is taking over the ABN Amro business in Singapore, Hong Kong and Dubai.
Seismic Shift in Private Banking
In a way, the divestments come as a surprise, given that many Western banks expanded into Asia over the past decade, expecting to generate handsome profits. For a while, it all went well, but the business with the super-rich in Asia started to fade more quickly than anybody had expected.
Today, private banking in Asia is undergoing a seismic shift and there are several signs underlining this development.
Regulation – a Costly Exercise
Rules and regulation in Asian asset management have become much tighter with the advent of the financial crisis. This is making business substantially tougher.
The banks which don't have their own regulatory experts readily available are in dire straits and have to build up knowledge at high cost – which doesn't pay off.
Offshore Banking – a Risky Business
The business with offshore assets (sometimes untaxed money) has become highly contentious and risky, not to say impossible, given today's radical fight against tax evasion in many countries.
Those who keep the offshore business running need loads of compliance – at high cost.
Open for Broader Customer Base
Third, financial markets are in trouble, also in Asia, and will likely remain so for a while to come. High volatility, low or negative rates and narrowing margins are the hallmarks of banking today. That's not conducive to successful wealth management.
Even bigger banks such as UBS and CS struggle to generate enough income, which explains why UBS – previously only active in banking with the seriously rich – today has turned to smaller clients in Asia as well, for instance in Taiwan and China.
Local Champions Are Taking Over
And last but not least, digitization is not only affecting the business as such, but also the habits of customers. Financial services companies and their units in Asia struggle to cope and have to stand by and watch how the local banks are taking their business away.
No surprise then that banks are leaving in droves – ABN Amro, DZ Privatbank, ANZ (partly), Barclays, Coutts, Societe Generale to name but a few.
Big Players Sticking It Out
And who profits from this development? Local institutes of course, DBS, or OCBC and UOB, banks which acquired the necessary knowledge in private banking over the past two decades and who hired numerous seasoned bankers from overseas institutes. The local banks are persuasive alternatives because of their stability and capital base, two important factors in today's tough environment.
The big players shouldn't be forgotten of course – UBS, Credit Suisse, Citibank and J.P. Morgan for instance. They are able to adjust their business models and target groups for whatever purpose and generate synergies with their investment banking units, an important strength with the customary clientele of entrepreneurs.
Stable Ownership an Advantage
And then there are the less-known winners of consolidation. Banks such as Julius Baer, LGT, Union Bancaire Privee and Lombard Odier – banks with attractive business models and the necessary size following recent acquisitions. A size that will help them survive the next wave of consolidation and change.
These banks also have very stable ownership and shareholders who are in the business for the long run, not a given in today's business world.