FINANCE
WEALTH MANAGEMENT SWISS MADE The banking centre that gave rise to troubled UBS is also host to many resurgent private banks
SAFE HAVEN OR SLIPPERY SLOPE?
With the credit crunch continuing to decimate the banking sector, where next for the high-net-worth individual’s money? Chris Owen reports
I
t is a measure of the shocks that have reverberated from Wall Street’s implosion that Merrill Lynch, an aristocrat of the wealth management firmament and ranked third globally with $1,309bn of assets under management in 2007, slid into the distinctly blue-collar embrace of Bank of America in September at a knockdown price of $50bn.
None of the big name brands have escaped entirely unscathed from the heavy subprime write-downs and the credit crunch, as a glance at the top 10 in this year’s Private Banking KPI Benchmark survey by wealth consultancy Scorpio Partnership reveals – UBS, Citi, Merrill Lynch, Credit Suisse, JP Morgan, Morgan Stanley, HSBC, Deutsche Bank, Wachovia and BNP Paribas. Many were hit hard with multibillion-dollar write-downs and the collapse of confidence and consequent rash of consolidation in the third quarter will have a huge impact on the rankings for 2008. Swiss bank UBS, last year’s market leader, posted its first-ever full-year loss, followed by two successive quarters of losses this year, as it had to write down over €31bn worth of subprime-related assets. At the same time it has suffered considerable reputational damage from high-profile legal cases, such as a
United States investigation into whether it assisted its US clients to evade taxes. It is too early to say what impact all this will have on the key industry benchmark, flows of net new money. UBS, for instance, recorded net outflows of €6bn in its Wealth Management International & Switzerland division and a net outflow of €5.1bn in Wealth Management US during the second quarter but, to put it in perspective, this represents less than 1% of total assets under management. Much more revealing will be the figures for the third and fourth quarters across the industry, which will show whether such flows were sustained, or accelerated, as the financial crisis bit – and where the money is heading. Reason and logic would suggest that the main beneficiaries will be either those integrated banking groups that have not been tainted by subprime or the pure-play private banks.
This redistribution between types of banks was already evident in 2007, when a number of smaller, independent banks experienced very strong net inflows. Pictet & Cie, Switzerland’s largest closely held private bank, boosted assets under management 30% last year to $120bn last year, while Bank Sarasin, which is controlled by Rabobank Groep, had a 21% increase in assets to $40bn. In recent years, the pure private-banking model was deemed to be at a disadvantage to the integrated banking model, in terms of the flexibility, distribution and investment opportunities that it could deliver to high-networth individuals (HNWIs). But in more uncertain times, it may be that this is the model HNWIs feel safest using and their net inflows will spike dramatically. “There is an impetus to move to smaller banks where lending is not a primary concern, where there is little exposure to property, and where the partners are invested alongside clients which provides private clients with more reassurance,” says Catherine Tillotson, managing partner at Scorpio Partnership. The picture may be further distorted by deposit protection arbitrage as governments come under increasing pressure to shore
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