priority for private banks, domestic and foreign, seeking new pools
of high net worth client wealth. Classic private banking is still
not widely entrenched, leaving players to formulate the right
models to tap clients. Dan
Jones reports.
Growth rates in the CEE
wealth markets of Poland, the Czech Republic and Hungary have
frequently outpaced those seen in the rest of Europe over the past
few years, but the downturn now affecting Western Europe is likely
to spread across to the East. That is likely to lead to further
changes in a private banking sector that continues to wrestle with
the question of how best to present itself to clients.
Go deeper with GlobalData
In Poland, the largest market in the region,
the private banking sector is dominated by former state institution
Bank Pekao. With $7.75 billion in assets under management, Pekao
has been effective in retaining clients while simultaneously
expanding its reach, having completed a merger with fellow Polish
institution Bank BPH in November 2007.
Both BPH and Pekao are part of the UniCredit
group, a fact that Pekao head of private banking Sebastian
Rheindorf-Zaorski sees as crucial to the future progress of his
division.
“We are heavily leveraging on the group best
practices. There is very close co-operation between Germany,
Austria, Italy and Poland private banking divisions. We are
involved in a huge project to standardise certain issues – the
investment process, the advice process and so on,” he told
PBI.
Part of that standardisation will see the bank
rebrand (as UniCredit Pekao), a course of action also set to be
employed by Pekao’s rivals in 2008.
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By GlobalDataPKO, the country’s largest bank which remains
majority owned by the state, and BWE, a small institution recently
purchased by private equity group Innova Capital, have also
announced rebranding exercises for 2008.
While one Polish private banker bluntly states
that “I don’t care about the logo or a sexy, spicy name, I care
about the products and our customers”, Rheindorf-Zaorski for one
sees further competitive advantages arising from the utilisation of
an international name in a market filled with largely domestic
players.
The rush by Polish banks to
redefine their offerings can be seen as an inevitable consequence
of the overbanked market, but leading players are also unanimous in
their view that the metrics of the private banking sector remain
similarly muddled. Liquid asset thresholds for wealth management
services, for example, start at just $50,000 in the case of
BWE.
Krysztof Kolaczynski, chief market strategist
at BZ WBK, furthers this argument by noting that “in Poland there
are no real private banking departments, rather it is wealth
managment”. BZ WBK, majority owned by Allied Irish Bank, has for
its part just launched a wealth offering with a minimum liquid
asset requirement of PLN1 million ($479,000).
Rheindorf-Zaorski insists that threshold
requirements will now begin to increase at a rapid pace, and says
it is Pekao’s intention to raise its own starting gate towards the
€1 million ($1.4 million) mark within the next two to three years.
The private banker, whose division currently has around 8,000
clients, estimates the total number of Poles with PLN1 million in
liquid assets amounts to between 50,000 and 70,000, though he
acknowledges that private banks’ growth potential has slowed, a
logical consequence of economic and stock market troubles.
“We had a very, let’s say precious time in the
last five years where the growth rates were tremendous, asset
growth of 25 to 30 percent every year, the number of clients also
by 10 to 15 percent,” he comments.
That analysis is supported by the latest
Global Wealth Report from Boston Consulting Group, published last
September, which spelled out the CEE success story: “Four of the
top six countries, measured by CAGR in AuM from 2001 to 2006, were
from Central and Eastern Europe – Hungary, Poland, Slovakia and the
Czech Republic,” it revealed.
The 2008 Merrill Lynch/Capgemini World Wealth
Report, meanwhile, notes that high net worth individual (HNWI)
population growth in the Czech Republic was the ninth-highest in
the world for 2006-2007, rising by 15.1 percent to bring the total
number of Czech residents with over $1 million in liquid assets to
17,000. “Strong private consumption” made the Czech Republic, along
with Poland, two of the strongest performers in Europe in terms of
GDP growth, though real GDP growth in Hungary slumped from 3.9
percent in 2006 to 1.7 percent last year.
The kind of growth seen in the Czech Republic
has led the likes of Jan Petrak, head of private banking at
Raiffeisen in the Czech Republic, to pronounce that he does not
consider the country to be an emerging market any more.
“It is pretty comparable to other medium or
small-sized European countries,” he asserts.
That said, Petrak echoes his Polish
counterparts in noting that the Czech Republic has “not got any
kind of standard for what private banking is”.
But the landscape is changing, according to
Jacques Peters, head of CEE at KBC’s European Private Banking (EPB)
division. KBC announced its intentions to make its EPB offering
“the first pure-play onshore private bank in CEE” at an investor
day this June, and points to its success in the Czech Republic as
an example of its initial accomplishments.
Under the banner of the CSOB banking brand,
KBC has €2.2 billion ($3.4 billion) in AuM and 4,350 private
banking clients in the Czech Republic, managed by a team of 53
private bankers.
“KBC is ready to ‘go East’ and to sharpen up
its strategic objectives by transferring the EPB business model to
the CEE markets,” says Peters. “Once at full speed, private banking
in Central and Eastern Europe is expected to add at least 10
percent to the profit contribution of the European Private Banking
business unit”.
KBC did, however, caution that “a more focused
strategy” is required in CEE now that other universal banks are
also beginning to focus more heavily on private banking.
Petrak provides one example of this in noting
that Erste Bank, in the shape of its Ceska Sporitelna arm, has just
begun to build up its private banking capabilities in the Czech
Republic, though the private banker sees KBC and UniCredit as
Raiffeisen’s main competitors in the region.
Talking about the wider Czech banking market,
Petrak believes that there is little scope for consolidation due to
the relative stability of the sector.
“We have five big banks which are leading the
market, then there are those banks which are too small to consider
to buy,” he suggests.
“But specialist player J&T, the
ninth-largest bank in the country by total assets, had nonetheless
amassed private client assets under management of CZK30 billion
($1.93 billion) by the end of 2007.
Foreign interest in the CEE onshore private banking
market is largely confined to established regional players such as
Raiffeisen, KBC, UniCredit and Erste, but Citigroup has also
engineered a foothold through its Citigold wealth management
division.
The mass affluent service, separate from Citi
Private Bank, requires minimum liquid assets of $100,000 and
continues to match rivals’ growth rates. Total client assets in
Hungary, for example, rose by 16 percent last year to stand at
HUF164 billion ($1.07 billion).
Hungary’s largest bank by assets, OTP, matched
this level of growth in its own private banking division, reporting
a 15.3 percent increase in AuM value, rising to HUF451 billion
($2.83 billion). But the country continues to lag behind Poland and
the Czech Republic in terms of HNWI population and bankable assets,
and remains a weaker element within the CEE growth story.
By way of further indication, a study on
Central European wealth produced by Market Dynamics Research and
Consulting reported that Hungary’s HNW growth rate more than halved
in 2007, falling back from 16 to 7 percent year-on-year.
While there are “sufficient indicators to
suggest that the wealth sector in Hungary will grow in line with
its closer neighbours”, the study considered the wealth management
market to be relatively unattractive, with short term HNW growth
likely to remain relatively subdued.
One reason for this, according to Attila
Balint, head of private banking at Raiffeisen in Hungary, is that
“the unpredictability of the regulatory environment, coupled with
excessively high taxes make it impossible to assure the sort of
benefits for international capital that might outweigh the
disadvantages associated with a small and open economy.”
Balint believes there are not more than 20,000
potential private banking clients in the country, but acknowledges
despite this that many service providers “have jumped on the gravy
train” in response to the high growth rates seen in the past few
years. UniCredit, by contrast, has now been present in the country
for almost a decade, and offers more than 100 different investment
funds to its clients, whose HUF150 billion in assets is managed by
a team of 21 private bankers.
“The market has regularly clocked up growth of
40 to 60 percent a year; competition has intensified further with
EU membership. However, I expect to see a consolidation in the
market: when things calm down a bit, the companies that are serious
about quality should be able to maintain their growth,” Balint
forecasts.
Balint contends that Hungary’s taxation system
hinders the upper and middle classes’ attempts to acquire wealth,
an area in which the country again trails its rivals. Petrak is
positive about the recent changes seen in the Czech Republic which
have benefited high earners by capping rates of tax payable on
their “super gross” income, and labels financial investment
taxation as being of a European standard.
In Poland, meanwhile, the government announced
earlier this year that the government is seeking to bring in a flat
personal income tax rate of around 17 percent, replacing the
current system which levies rates of up to 40 percent.
Rheindorf-Zaorski says the potential market in
Poland is “huge”, though others such as Kolaczynski expect to see a
reduction in the number of domestic players attempting to gather
that wealth. “In Europe as a whole we’ve seen consolidation, but
not yet in Poland, so I expect that will probably happen in
future”. The arrival of universal banks, meanwhile, is nothing to
be feared, according to Harald Friedrich from Sal Oppenheim.
“We very much appreciate private banks coming
into those markets, because I think at the moment it’s not a war
for market share. The market is big enough and still developing,”
he says. “There are many rich people out there who haven’t had any
contact with private banking of a certain level, so there is a need
for a sort of education, at least showing the people what value
private banking services can add for them”.
CEE Wealth
‘Quasi-onshore’ approach
gaining currency
While onshore wealth managers have
hoovered up much of the available wealth within Poland, the Czech
Republic and Hungary, the market is also being tapped by some of
Europe’s biggest private banks, such as UBS, which is present in
both Poland and the Czech Republic. Other Swiss banks also have a
presence: Lombard Odier Darier Hentsch, for example, opened a
representative office in Prague last October.
Sal Oppenheim, the independent private bank,
now has offices in Poland, the Czech Republic and Hungary, having
opened in Budapest in May. Its approach is characterised by Harald
Friedrich, head of private banking for Central and Eastern Europe
(CEE), as “quasi-onshore”, offering a range of solutions that
conform to clients’ local tax requirements.
“Although the assets are booked offshore, we
really have spent a lot of effort and money to develop solutions
together with external experts in those countries – legal experts
and tax experts – to optimise the structure and the tax burden in
accordance with local tax regimes,” Friedrich asserts. “Many of our
competitors gather money and more or less have it as offshore funds
without caring too much about optimisation with respect to the
local tax structure. So this is perhaps one of our unique selling
points in this field”.
Sal Oppenheim’s clients in CEE number “several
hundred”, according to Friedrich, who adds that the private bank,
which set up its first office in the region in Prague in late 2005,
has set initial AuM targets in the hundreds of millions of Euros
but ultimately envisages gathering assets on the scale enjoyed by
leading domestic players.
He believes that the changes to tax systems in
CEE mean there is now little reason to offshore wealth in its
entirety, citing the “low basic tax burden, room for optimisation
and stable legal framework” as a key factors.
“A lot of liquidity in those countries is
generated totally official by M&A transactions or capital
markets transactions that are totally white, visible and taxed
accordingly,” Friedrich believes, adding that he had seen clients
become progressively more concerned about offshoring wealth even
before the Liechtenstein evasion scandal blew up earlier this
year.
Domestic CEE wealth managers maintain a
cautious outlook, however. Raiffeisen’s Balint is certain that the
Hungarian taxation system does not benefit the amassing of onshore
wealth, while private bankers in both the Czech Republic and Poland
are also aware of the strength of Swiss offerings.
Jan Petrak, his colleague in the Czech
Republic, believes that many clients from CEE and former USSR
territories will remain committed to offshoring their wealth,
though Pekao’s Rheindorf-Zaorski is confident that his institution
will remain Poland’s largest private bank by any metric.
“A lot of clients have several banking connections, so we do
know that quite a substantial number of our clients have offshore
banking connections. But AuM at UBS in Poland is certainly not on
the scale we have now, that is my feeling.”
