vastly more important for private banks in 2008 as they seek to
expand their businesses because of eroding profit margins.
As client preferences have shifted from structured, often
complex products, to more vanilla offerings and assets under
management have fallen, banks have been forced to review their cost
bases and look at new business models.
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UK-based SG Hambros is one bank which is
starting to reap the benefits from an onshore drive it started in
2007. The private bank, a subsidiary of SG Private Banking, opened
branches in Edinburgh and Manchester earlier this year, adding to
existing locations in Yorkshire, Cambridge, Milton Keynes and
Southampton.
Its parent company, Société Générale, through
its SG Private Banking subsidiary, is following suit in France,
expanding in Bordeaux, Marseille and Lyons, having previously been
based solely in Paris.
“There are ways to address declining
profitability, both through managing the cost base and attracting
more business,” said Phil McIlwraith, group commercial director at
SG Hambros.
“Industry returns on assets under management
will reduce, but if you can increase client numbers, you can
maintain or grow profitability. The days of making stellar returns
are over – we’re making just over 100 basis points on assets under
management currently, which is good but not excessive. Selective
expansion, particularly through the onshore business, will be an
important part of our strategy.”
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By GlobalDataWhile Asia is seen as the best region to
expand organically by the global wealth managers, there are many
European-based private banks that still believe their own markets
offer opportunities for asset gathering with the effective use of
local knowledge. Domestic markets are still fractured, they say,
and opening regional branches is seen as a method of building
better relationships with local clients.
“In the UK, like many fairly prosperous
countries, clients outside of the main centre can feel overlooked
and unloved – and a purely London-centric approach does not go down
well at all,” said McIlwraith.
“The interesting thing about the UK market is
that it’s still quite fragmented and there are lots of wealthy
individuals who do not use a bank like us. They may have a
historical relationship with a retail bank and not know or
appreciate what a proper wealth manager can do to help them. The
challenge is to get the message out there.”
|
MARGINS |
||
|
Gross margin – model private |
||
|
Asset class |
2009E(1) |
Gross margin |
|
Accounts, money markets, fiduciaries |
18 |
20 |
|
Alternative assets(2) |
7 |
180 |
|
Third-party funds |
8 |
90 |
|
Bonds |
21 |
50 |
|
Equities |
25 |
100 |
|
Investment loan finance |
6 |
100 |
|
Own funds |
15 |
150 |
|
Blended gross margin |
88 |
|
|
E=estimate. (1) share of total profit; (2) Source: Company data, UBS estimates |
||
