Barclays Wealth’s joint venture with one of Japan’s
largest banks, SMBC, gives the fast-growing wealth manager a
crucial foothold in a key market. Barclays Wealth Asia-Pacific
chief operating officer Cedric Lizin tells Maryrose Fison why his
bank will succeed where others struggle.
Go deeper with GlobalData
Japan remains a tough nut to crack
for many Western-based private banks. A substantial wealth pool has
attracted many who then struggle to adjust to cultural and
investment idiosyncrasies.
Its “lost decade” in the 1990s
slowed economic development considerably. Now stable economic
conditions coupled with a surge in the numbers and wealth of high
net worth investors (HNWIs) has propelled wealth management
opportunities in Japan up foreign banks’ agendas.
Barclays
Wealth’s joint venture with Japanese banking giant Sumitomo Mitsui
Banking Corporation (SMBC) in July has given it a foothold in this
promising market.
However, Cedric Lizin, chief
operating officer at Barclays Wealth Asia Pacific, who led
negotiations on the joint venture, says tapping into this wealth
pool effectively is a fine art.
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By GlobalData
Japan private banking
‘nascent’
Speaking exclusively to Private
Banker International, Lizin explains the deal took months of
detailed discussions to secure.
“From our perspective, we realised
it was the only way for us to contribute to a successful business
because SMBC is one of the top three mega banks in Japan,” Lizin
says.
“It has access to a large number of
HNWI either because they have either an individual relationship or
a corporate banking or commercial banking relationship with
them.”
“The second reason for us was that
SMBC wanted to beef up its expertise to improve its private banking
business model. Private banking is nascent in Japan right now so if
we can have a business model that is distinctive it would be a big
advantage for SMBC and their clients.”
A special case
Japan’s differing culture, economy
and banking practices means that success is not always guaranteed.
PBI’s own research has shown in recent years a number of
international banks have attempted to penetrate the East Asian
country.
Merrill Lynch undertook a joint
venture with Bank of Tokyo Mitsubushi UFJ and Credit Suisse, UBS
and Société Générale entered as independent foreign players.
Japan’s sizeable wealth pool
remains a magnet for asset-hungry banks. The number of high net
worth individuals (HNWIs) grew 21% to 1.7m in 2009 and wealth rose
22% to US$3.9trn, according to the 2010 Merrill Lynch/Capgemini
Asia-Pacific Wealth Management Report.
In the Asia-Pacific
region as a whole there were more than threem HNWs last year –
equalling the number in Europe for the first time.
Lizin says undertaking a joint
venture with one of the nation’s largest private banks was the
ideal solution; not only for providing a ready-made supply of
wealthy investors, but also for eliminating the additional time
involved in setting up an independent infrastructure.
Had Barclays set up on its own,
Lizin says the time involved renting office spaces, setting up the
front and back-office systems, gaining the requisite banking
licence and other considerations would have delayed Barclays by at
least two years.
Winning over entrenched
clients
Lizin looked at how other foreign
private banks had fared in their forays in Japan in order to assess
the viability of a joint venture. He saw that although some big
name foreign banks had well-earned reputations internationally,
this was not always enough to win over clients already satisfied
with existing Japanese institutions.
“We came to the conclusion that we
would need to partner with a local bank, primarily for two
reasons,” he says. “First is the loyalty factor. Japanese clients –
including HNWIs – remain quite loyal to the local banks.”
Lizin says Japan also has a very
different private banking culture.
“Their investment needs are quite
different from, say, those of HNWIs in Europe and therefore you
need to be able to adjust your value proposition accordingly,” he
says (see Client risk tests ‘eye-opening’,
opposite)
Targeting Tokyo, Osaka and
Yokohoma
In total, joint venture discussions
ran for 18 months, making it lengthy by some western standards.
However Lizin concedes the attention to detail early on has paid
dividends in the short-term. Since July, Lizin has built up a
32-strong team of investment specialists on secondment from SMBC
that could rise to 50 by year-end.
The team aims to have more than
5,000 clients in the medium term and several hundredbn yen in
assets under management in the same time-frame. At the moment,
Tokyo, Osaka and Yokohoma have been targeted as the three cities to
focus new business opportunities because of the high density of
wealth individuals living in these places.
“We did an analysis of where the
HNW individual are located within Japan and so we started coverage
in some regions where the penetration of HNW individuals is high.
We will expand the coverage to the whole of Japan over time,” Lizin
says.
Lizin adds the Japanese investors
who had become clients tend to be older and have accrued their
wealth over a longer period of time – typically their entire
working lives. This is opposed to their wealthy Chinese neighbours
where HNWs are generally younger and have generated their wealth
over a shorter period.
In terms of wealth size, the
minimum threshold for investible assets is generally about ¥500m
($6.2 million) and most clients are either corporate owners or
senior executives. The potential for retirement planning and
long-term investment options are immense too. Japan has the highest
life expectancy in the world with average lifespan of 81 years.
Lizin says the team at Barclays aims to capitalise on this
demographic.
“We have a team of researchers that
develop specific investment ideas and then, taking into account the
needs of our clients as well as their financial personalities, we
combine all these and we develop some specific products tailor-made
to the clients,” he says.
The strategy is not without its own
challenges. Balancing the cost of hiring the most experienced
investment specialists to work on the joint venture with the value
they will bring is not an exact science.
Staff come from two main sources:
those who are on secondment from SMBC and external hires. Usually,
the process for selecting an external candidate will take around
three months.
Growing too
fast?
“The biggest
challenge is finding the right investment specialists and balancing
the cost of a highly skilled member of staff with the amount of
revenue they are likely to generate,” says Lizin.
“In Japan, because the private
banking market is nascent, it means that the pool of talent is
limited. We have also to think about how to develop investment
specialists and to train them.”
Once recruited, the investment
specialists then undergo a rigorous, cross-continental training
process working for several weeks in both Tokyo and London to bring
them up to speed with Barclays’ approach and different offerings.
But, for all the resource and planning going into the joint
venture, is all the recruitment at Barclays sustainable? Lizin
believes it is.
“The reason why we do so much
hiring in Asia is because we have very ambitious growth plans
here,” he says.
“In Asia, we hire senior bankers
even though they cost more than junior bankers, because senior
bankers bring more new
business and at a faster rate than junior bankers do.
“They know the business; they have
good relationships with clients. They also know how all the control
aspects of private banking work, the rules and the regulations, and
as a result, we have a better controlled business. So all in all,
it is much better to have the senior bankers.”
It may be early days still, but with promising results and
ambitious plans to expand into other parts of the country,
Barclays’ joint venture with SMBC may become a blueprint for
foreign banks looking to capitalise on the opportunities of a
nation that remain a crucial, yet challenging, wealth market.
See also: Client risk tests
‘eye-opening’
