IN a megabucks deal earlier this month, OCBC Bank snagged the wealth and investment management business that Britain’s Barclays Bank has in Singapore and Hong Kong, for a cool $320m.
Those businesses will add assets under management of $18.3bn — as of December 31 last year — to OCBC’s private banking unit Bank of Singapore, which has $55bn of assets under management. The private bank would become the seventh largest in Asia, just after DBS Bank, coming in sixth with assets under management of $75bn.
This is just the latest in a slate of deals involving private wealth assets, where private banks in Asia are changing hands as often as their bankers change fancy cars. Societe Generale sold its Asian private banking business to DBS for $220m in 2014, and its Japanese private banking arm to Japan’s Sumitomo Mitsui Banking Corporation in 2013.
Private banks in Asia are changing hands as often as their bankers change fancy cars
Bank of America’s wealth management business outside the United States — including in Singapore — went to Swiss private bank Julius Baer in 2012, while Credit Suisse snapped up HSBC’s Japan private bank in 2011.
OCBC also acquired the coveted Asian private banking arm of Dutch giant ING in 2010, in a deal worth $1.46bn.
How is the private wealth landscape in Asia shaping up with these deals and are Singapore banks benefiting from the surge in activity?
Tough market out there
On the surface of it, it may seem puzzling that big banks are giving up their private wealth business in Asia. After all, Asia’s private wealth is growing the fastest in the world. Asia expects almost 27,000 new ultra-high-net-worth individuals over the next 10 years — about 35pc of the expected global total increase, a survey by property consultancy Knight Frank found.
Private wealth in the Asia-Pacific, excluding Japan, soared 15pc in 2014 — compared with less than 12pc the previous year — to reach $33tr, said a 2015 report by the Boston Consulting Group (BCG).
That is somewhat closing in on Western Europe — BCG includes Switzerland and Britain — where private wealth grew 7pc to $40tr in 2014.
On deeper inspection, the reasons become clearer: Most of the banks giving up the Asian private wealth assets are European banks. They are still struggling to recover from the global financial crisis of 2008, which left in its wake a string of regulatory compliance and other rising costs.
European banks continue to restructure and realise the only way is to brutally cut costs and let go of businesses with less than stellar results, many of them in Asia.
Craig Loveless, a partner at law firm Norton Rose Fulbright, which has been working with foreign banks looking for such Asian assets, said those which have left ‘may have had taxpayer bailout, so there’s a desire to retreat to their home markets’.
One requirement to get government bailout was for banks to divest of their assets. The Royal Bank of Scotland (RBS) for instance, had a £45.5bn ($65.42bn) government bailout during the financial crisis.
It sold its international private banking business Coutts International to Swiss private bank Union Bancaire Privee (UBP), which agreed to the deal last year. UBP also bought Lloyds Banking Group’s international private banking arm in 2013.
Michel Longhini, private banking chief executive at UBP, said it is a similar story in Switzerland, where foreign banks are exiting as they have needs back home and are facing high cost ratios as well. UBP was able to spot opportunities there too, buying part of the offshore business in Geneva from major Spanish bank Banco Santander in 2012.
Singapore Management University finance professor Annie Koh said another push factor is that the European or other global banks are finding it challenging to achieve sufficient scale in Asian or Middle Eastern markets to be profitable.
She said shareholders in their home countries are getting impatient for higher returns, ‘taking into consideration higher risks of these emerging markets’.Asian banks have got a critical mass here, which means they can probably better manage the costs and do things in a more profitable way than the foreign banks could.”
Besides being on home ground, one of their biggest advantages is having the funds to back these acquisitions, said Abdul Jabbar, head of corporate and transactional practice at law firm Rajah & Tann Singapore. This is the case for OCBC, which said Bank of Singapore has sufficient financial resources to fund its latest acquisition with its internal cash. Singapore’s place in private banking in Asia
In the broader private wealth space in Asia, Singapore is in good stead to benefit from the growing wealth and weather the changes to come.
It is known as a premier financial hub with well-capitalised banks and a business-friendly environment that is seen to be at the forefront of several industries in Asia. Hong Kong may be its closest competitor in Asia, but in Southeast Asia, Singapore is the financial centre. Wealth management has always been a traditional, conservative industry, but financial technology players are coming in to unbundle services and offer them to a wider range of clients while touting greater transparency.
The MAS has recognised the crossing of lines, and set up the fintech and Innovation Group, for instance, to work with industry partners to test-bed new financial technology solutions. The government has also earmarked S$120m ($89.54m) to arm Singaporeans with infocomm technology skills.
However, to deal with the changing landscape, there is a need to continue to attract top talent to commit to growing the industry here and to provide a rapid-fire response to changes. With a projected compound annual growth rate of nearly 11pc, private wealth in Asia-Pacific, excluding Japan, will rise to an estimated $55tr in 2019.
BCG added, “This pace should enable the region to overtake Western Europe and further narrow the gap with the world’s largest pool of private wealth, North America.”