Private banks are having to re-examine
their business models as wealth in the Middle East matures from
family offices structures to catering for increasing investment
appetites. Should private banks be shifting focus from managing
wealth to creating it?
Go deeper with GlobalData
A PBI round table
held in Dubai last month brought together some of the region’s most
experienced professionals to talk about the key issues facing their
industry.
Private Banker International (PBI): Switzerland
has traditionally been an important booking centre for Middle
Eastern clients. How has the recent pressure on bank secrecy
impacted your business model and others in the region?
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By GlobalDataNigel
Putt, head of private banking, Lloyds TSB International Private
Bank – Dubai: Switzerland will continue to be
attractive to clients because of its deep tradition, but there are
other places that will present a threat going forward.
The challenge for Switzerland will be
to see how it can link that into the other regulatory regimes that
exist and for Switzerland to recognise as a country that to remain
isolated will become increasingly difficult.
So for us it continues to be very
important. There is a tax element to Swiss regulation – this is
less relevant in the Middle East, which has a low tax regime – but
for us, Switzerland continues to be important.
PBI: One of the
key trends we have seen recently in private banking has been the
proliferation of M&A activity. What is the benefit for private
banks of being able to offer M&A opportunities and advisory
services to clients?
Jon
Breach, partner, BDO Corporate Finance: In the
Middle East there will undoubtedly be more consolidation in the
private banking sector. Many people say that the region is
overbanked and there is the opportunity to consolidate to reduce
costs and to improve the capital base.
A lot of the wealth here is family wealth which
has been created through the family trading enterprise. The wealthy
are much more comfortable with making direct investment into
businesses and managing that risk.
I think that is a service that banks should
look to hand on internally and let the accounting and legal
networks provide those opportunities. There is certainly the demand
from private clients for those M&A services.
Putt: One of the challenges
for private banks in this region, where so much capital is
privately owned, is to retain wealth management within the family
without the family pushing you into something that private bankers
are not best qualified to do.
I think that the families will push
their trusted advisers more and more into the corporate world as
they perceive that to be an extension to the services on offer.
This may take the private bank out of
its comfort zone. I think the identity of the private bank has to
be very clear in terms of what it does and does not do and this is
related to its ownership.
Private banks that are owned by an
investment bank may have a different long-term objective to those
that are not.
A private bank has to position itself
as either a wealth manager or a wealth creator.
If a client comes to you and says ‘I
want to sell my business, can you help me?’ It is very tempting for
a private bank to say ‘Yes I can’. In fact, it is there to manage
wealth that has deliberately been taken out of the corporate
world.
So if a client comes to us in theory
and says ‘Can you help me sell my business?’ you have to say ‘No I
can’t, but I can arrange for you to meet suitable people who can
then transact should you wish to employ them’.
Navid
Goraya, adviser to the chairman, BMB Group: As
wealth and sophistication grows in the region, private banking
clients are evolving into family offices.
However the gap between the number of
sophisticated family offices and overall client base still remains
very large.
Established and sophisticated family
offices have transitioned into merchant banks in their own right,
in many cases originating, structuring and placing the transaction
to a club of five or six other family offices in their peer
group.
This has slowly changed the landscape
of private equity and capital raising in the region.
As a result, regional investment
banking and private banking models have to adapt to the shifting
needs of the regional family offices and mid tier private banking
clients.
PBI: Is having
corporate and the private banking part of the business quite
important here in Dubai, due to the trend for the wealth of the
individual and the business to be very closely tied
together?
Putt: What is challenging is
the growth of the local capital market. One of the interesting
features of an emerging market is the transition between regarding
everything that you have as secret and very valuable, to realising
that disclosure is valuable. But the more mature a capital
market, the more disclosure is valued. With disclosure comes
governance and what many families are now realising is that the
better their own governance, then the better value they get out of
the management of the portfolio of businesses at any one time.
