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PRIVATE BANKERDecember 2013 Issue 303 www.privatebankerinternational.com

Eight banks give their 2014 global investment forecasts

•Exclusive interview with Coutts CEO Rory Tapner•Swiss/US business set to rise

•PrivatebankslimberuptofamilyoficesboominSingapore•Could the United States lose its championship title?

seCtION: tItle Private Banker International

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CONteNts2 News: deals

4 aNalysIs: 2014 ROUNd-UP

Changes to regulation, emerging market performance, economies of scale, internal restructuring, clients’ perceptions of value – these are the factors exercising the minds of the leading global private banks as they look ahead to 2014, Paul Golden speaks to 8 private banks

6 INteRVIew: RORy taPNeR, COUtts

After an intensive programme of upgrading, Coutts has seen a satisfying payback for its makeover- it ranks as the largest private bank in the UK. John evans sits down with Coutts CEO, Rory Tapner, to find out more

8 FeatURe: Us/swIss BaNKING

The past few years has seen Swiss wealth managers shy away from the US market. But a comprehensive rulebook to date, has transformed the market to allow business to once again be done. alison ebbage reports

10 aNalysIs: FaMIly OFFICes

As family offices rapidly expand in Singapore, private banks are left with little choice but to strike mutually beneficial partnerships to manage the rising fortunes of Asian tycoons. Caroline Ng investigates

12 COUNtRy sURVey: Us

Patrick Brusnahan and WealthInsight look at the current state of private banking in the US and the troubles that may lie ahead

14 lIQUIdIty PROFIle: MalONe/GORHaM

This month,Library Media chairman and CEO of Discovery Holding Company, John C. Malone (pictured), and CEO of Hargreaves Lansdown PLC, Ian Gorham

15 News: MOVeRs aNd sHaKeRs

16 COMMeNt: alVaRO sOBRINHO

News: dIGestPrivate Banker International

stRateGy

Exclusive: Arbuthnot Latham to double AUM in under three years

Arbuthnot Latham, the boutique private bank, has revealed ambitious plans to grow assets under management to £1 billion within the next three years.

Speaking at their London headquarters, CEO James Fleming, said the bank was looking to lean more heavily on its lending capabilities, targeting a bigger share of the high-net-worth clients as tougher regula-tion and volatile markets dent investment in other returns.

“We are looking to increase our AUM from £500 million to £1 billion by 2016. We have just entered the Middle East, with an office in Dubai, and we’re looking to add further staff to our branches in Exeter and Manchester.”

He added: “In recent months we have seen more interest in clients looking to borrow money, mainly as a result of the traditional lending market contracting.”

Since being parachuted in from Coutts to

revamp the private banking arm 18 months ago, the CEO said the division has witnessed increased appetite from clients who are shun-ning away from the big global players. The aftermath of the 2008 recession left a bitter taste with many HNWIs, who simply do not trust the larger banks and do not feel they get the ‘one-on-one’ interaction.

Fleming said: “There has been more fluid-ity in the client market in recent years. Post crisis, the wealthy are looking for a second or third bank to expose themselves to less risk. The collapse of Lehman Brothers in 2008 came as a shock to many, and revelations of miss selling, rogue traders and fines in the banking industry caused alarm.”

Celebrating its 180th birthday this year, the group is one of the few remaining inde-pendent banks in the UK. Its chairman, Henry Angest, owns 53 % of the company, the rest is listed on AIM. <

sINGaPORe

Exclusive: Rising fears of Singapore’s overcrowded banking system

As Singapore strives to topple Swit-zerland’s top place in being a pri-vate banking hub, a lawyer has warned the risks of the city-state being too overbanked.

Nisha Singh, senior asso-ciate for Singapore private clients at global law firm Berwin Leighton Paisner, exclusively told Private Banker International that clients, typically the swell-ing ranks of millionaires, are increasingly choosing to have multi-ple banking relationships in the aftermath of the financial crisis.

She warned: “They tend to be banking with a number of institutions and it

can be overbanked. As a result there is nobody who has the full picture because the private banker at one bank may be sell-ing assets, while the other may be buying back the same thing.”“You have these types of inef-

ficiencies creeping in,” she added.While the sheer volume of

banks reflects a competitive envi-ronment for consumers, its saturation

could also lead to some institutions not having enough business to support their over-head, resulting in less efficiency. <

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News: deals Private Banker International

deals

M&A dominates private banking in 20132013 has seen a major drive in consolida-tion. A tsunami of M&A in the wealth management industry has been triggered by tougher regulation, tax treaties and continu-ing margin pressure and competition.

The private banking sector has lifted the spirits of investment bankers as global M&A in different sectors has, on the con-trary, dramatically fallen.

Data gathered by sister company, Wealth-Insight, shows that deals across the global wealth management industry have increased by a staggering 640% from 2007 to 2013. This is the highest increase the industry has even witnessed. According to research, more than $1.1trillion of high net worth (HNW)

assets have been transferred since 2008.French bank Societe Generale has sur-

prisingly gone from predator to prey: Singapore’s DBS and Dutch bank ABN AMRO are battling to snap up its Asian private bank unit.

In addition, HSBC, which has pulled out of a staggering 54 countries, is believed to have put its Global Asset Manage-ment division up for review with $412.9 billion of assets.

Asia, one of the favourite destinations of wealth in 2013, is under the consolida-tion radar. The region is experiencing rising competition and cost pressures, and will see more M&A activity as international private

banking businesses join on the band wagon of booming prospects in the region.

Countries such as Switzerland and the rest of Europe have also been witnessing a significant number of buyers and sellers, with M&A becoming a staple of most of the banks’ business models.

Global auditor KPMG has estimated that another 25-30% of Swiss private banks will disappear in the next three years: almost 50% of all deals were driven by EU entities during 2008 and 2012.

In the UK, 50% of wealth managers in London will depart in three years, with a large number of foreign firms struggling and looking for merger solutions.<

29 January. sarasin and safra finalise powerhouse mergerBrazil’s Safra Group announced

its f inal merger with Sarasin

after it acquired the Swiss bank

in November 2011.

Private bank Sarasin, formerly

controlled by Netherland-based

Rabobank, was bought in a deal

valued at CHF1bn ($1.09bn)

in November 2011.

The merger formed Bank J.

Safra Sarasin with assets under

management of CHF130bn.

19 February. Bancolombia acquires HsBC Bank (Panama)Bancolombia acquired HSBC Latin

America Holdings, a wholly-owned

subsidiary of HSBC Holdings plc,

for $2.1bn. Under the agreement,

Bancolombia assumed the entire

f inancial operation in Panama,

held through HSBC Bank (Panama)

and its subsidiaries, Financomer

SA, HSBC Seguros Panama Panama

SA and HSBC Securities SA.

25 March. Credit suisse buys Morgan stanley wealth management unit in eMe,

excluding switzerland, at an undisclosed price.Worth over $13bn of AUM, Morgan

Stanley’s unit will be integrated

into Credit Suisse’s private

banking & wealth management

division with the Swiss bank’s AUM

growing to roughly $850bn.

1 april. Credit suisse sells JO Hambro Investment for £50mCredit Suisse Group AG agreed to

sell British wealth manager JO

Hambro Investment Management

(JOHIM) to Bermuda National

Limited for £50m.

JOHIM is a London-based

investment manager specializing

in discretionary portfolio

management for private clients,

charities and institutions and

has a range of in-house managed

investment funds. JOHIM has

£3.6bn assets under management.

31 May. Merrill lynch merges with Julius BaerGeneva-based Merrill Lynch

merged its branches in Zurich and

Dubai into Julius Baer.

After Julius Baer acquired Merrill

Lynch’s International Wealth

Management (IWM) business

outside the US on 1 February

2013, Merrill Lynch Bank was the

f irst business to be transferred to

the Julius Baer Group. The latter

begun the transfer of Merrill

Lynch’s IWM business in Hong Kong

and Singapore on 28 May.

27 June. Falcon acquires Hyposwiss’s private banking business in Central and eastern europeSwitzerland-based Falcon

Private Bank acquired the

Central and Eastern Europe

private banking business of

Hyposwiss Private Bank Zurich,

a wholly owned subsidiary of

St. Galler Kantonalbank. The

purchase price for the transaction

was not disclosed.

14 July. HsBC sells private banking activities in luxembourg to VP BankGerman-based HSBC Trinkaus

& Burkhardt agreed to sell

its private banking and fund

business in Luxembourg to

Liechtenstein’s VP Bank Group for

an undisclosed price.

The two units had AUM of

approximately €1.5bn ($2bn) and

€0.7bn (US$0.9bn) respectively

as of 30 June 2013.

In May, HSBC announced it was

selling its Monaco business, but

then, despite the interest from

Safra group, the bank decided to

pull the sale.

31 October. Kleinwort Benson acquires BHF-BaNK from deutsche BankKleinwort Benson Group (KBG),

the wholly-owned subsidiary of

RHJ International (RHJI), agreed

to acquire private bank BHF-BANK

(BHF) from Deutsche Bank for

€354m ($486.3m).

As per the agreement, KBG

acquired 91% stake in BHF for

€322m, while RHJI acquired the

remaining 9% stake directly by

issuing RHJI shares to Deutsche

Bank at par value.

1 November. Morgan stanley acquires 30% stake in Mitsubishi UFJ’s wealth management armMorgan Stanley agreed to buy

a 30% stake in Mitsubishi UFJ

Financial Group’s Japanese wealth-

management business.

Mitsubishi UFJ Morgan Stanley

Securities, the securities joint

venture between Mitsubishi

UFJ Financial Group and Morgan

Stanley, will hold 75% of the

private banking unit while the

Japanese lender’s main commercial

banking unit will hold the

remaining 25% stake.

No further terms of the deal

were disclosed.

5 december. aBN aMRO acquires Credit suisse Group’s German private banking activitiesCredit Suisse Group has recently

agreed to sell its domestic private

banking activities in Germany

to Bethmann Bank, ABN AMRO’s

private bank in Germany.

Bethmann Bank will take over

Credit Suisse’s 9000 private

customers, who have a combined

wealth of €10 billion ($13.6 billion)

with investible assets exceeding €1

million in the country.

The acquisition will increase

Bethmann’s number of clients to

20,000 and raise its assets under

management (AuM) to €34bn from

€24bn previously.

some of the key M&a deals that made the headlines this year included:


News: dIGestPrivate Banker International

editor’s Comment

Things have certainly

got better for private

bankers and their clients

this year. There has been a reduction

in volatility, a return of market confidence

and a steady rise in asset prices.

However uncertainty st ill lurks over

the industry. Still recovering from the

damage of the f inancial cr isis, pr ivate

banks continue to work in an environment

of increased regulation, low interest rates

and pretty dire economic growth.

Despite the lack of clarity, this month

private banks gave their forecasts for next

year. Many agree that global economic

growth will accelerate in 2014 amid a

cooperative stance from central banks,

which will make equit ies and credit a

preferred home for investors’ money next

year and beyond.

The general consensus for market

prospects for the next five to seven years,

is favouring equities, credit and diversified

investments in hedge funds over liquidity

and high-grade bonds.

Global economic recovery is supposed to

gather pace in 2014, with global GDP growth

rising to 3.4%, according to UBS. Yields on

government bonds and other high-rated

bonds in developed markets, which have

been historically low in recent years, should

begin to normalise as economies expand.

Despite the posit ive forecasts many

conservative private bankers are still not

convinced a return of economic growth,

rising equity prices and a renewed search

for the yield will be enough to change the

issues facing the sector.

The sector is still battling with increased

regulation, client’s cautious nature after a

demise of trust with the major banks, and

relentless pressure on costs.

However, one thing is for certain. There

will continue to be a major transformation

of the industry and the survivors will come

out stronger and wiser. <Mark Foxwell, Editor

[email protected]

stRateGy

Exclusive: Citigold wealth management clients increase 100% in 3 years

Citigold, the wealth management arm of Citigroup, has predicted double-digit growth

for new business over the next two years.Rajat Garg, who heads up the division, said

the bank has seen global customers increase from 80,000 to 160,000 in just three years, with similar growth forecast to continue.

“We are seeing a large amount of expansion in this sector. We are seeing the most growth in Eastern and Central Europe,” Garg told Private Banker International at Citigroup’s UK headquarters in Canary Wharf, London.

He said the growth was mainly due to the two regions emerging out of communism 15 years ago, performing better after the after-math of the financial crisis due to having less debt than other European countries.

“Russia is one of the top performing coun-tries that has seen the most growth in terms

of clients,” he added.Citigold caters for HNW and affluent

investors with under USD $10 million and more than $150,000.

The division is currently in the process of streamlining its back end platforms by merg-ing them together under a single standard-ised global unit called ‘Rainbow’. The pro-gram, developed over two years, will be fully rolled out early next year.

In terms of strategy, Garg emphasised that Citigroup is focused on remaining a global bank. This is in contrast to several of its peers who’s strategy is to have a domes-tic focus after being hit hard with increased regulation, competition and tax treaties. This has lead to sell offs and private banks exiting from certain countries. <

JaPaN

Exclusive: JP Morgan targets JapanJP Morgan’s private banking arm chief investment strategist, Cesar Perez, said the bank was targeting Japan after witnessing ‘surprisingly rapid growth’ this year.

He said many banks were not aware of the substantial investment uplift in the country. “No one is ever talking about Japan,” he said.

Japan improved its corporate earnings outlook in the last year showing posi-tive economic data and a reversal in yen strength, said strategists.

Furthermore, Japan has an abundant wealth and it is second only to the US by number of dollar millionaires. Total wealth in Japan is expected to reach US$10.3trn by the end of 2017, up from $6.7trn in 2012, according to sister company Wealth-Insight. In addition, the amount of invest-able assets by person (at least $1million) is

more than three times that of China.Meanwhile, Japan’s equity market has

made a sizable comeback, rising more than 12% over the past two weeks, according to reports.

However, JP Morgan’s investment strate-gist for EMEA, Livia Constantinescu, told Private Banker International that many private banks in Japan are struggling with a conservative approach from clients.

Over the last year, groups like HSBC, Standard Chartered and Merrill Lynch have entered and exited the market. Most recently, Societe Generale offloaded its wealth unit to Sumimoto Mitsui Corp.

JP Morgan entered the Japanese market in 1924. The bank said Tokyo is one of the firm’s largest headquarters in Asia, with 1,300 employees covering all of the bank’s divisions. <

sURVey

Exclusive: The millionaire gender divide - WealthInsight

According to a survey by Private Banker International’s sister company WealthInsight, in association with Spears magazine, 90% of the world’s multi-millionaires are male.

The most equal country for millionaires is Portugal, where 24% of multi-millionaires are female, and Japan is the least equal with only 3.7% of multi-millionaires being female.

The survey shows that a number of devel-oped liberal economies, including Japan, France and the United States, are below the global average in terms of the percentage of female multi-millionaires.

The United Kingdom sits 10th in Europe, and 15th in the world, for gender equality in the multi-millionaire population. <


Private banking surveys conducted during 2013 paint a mixed picture of the industry’s prospects for next year and beyond. For example, the Scorpio

Partnership global private banking bench-mark refers to increased client confidence and strong inflows – yet also warns of rising operating costs. BCG’s global wealth report says the risk appetite of investors in both developed and emerging markets is gradual-ly returning, while the PwC private banking survey suggests clients are underwhelmed by the communication they receive from their wealth managers.

Credit suisseThe relative optimism expressed by Mike O’Sullivan, CIO UK and EMEA Credit Sui-sse is based on an improved economic out-look. “In late 2012 Europe was still firmly in recession, the US was facing the possibility of deep fiscal cuts and there were expectations of a ‘hard landing’ for the Chinese economy.”

The tendency for markets across the year has been to push higher on risk factors as opposed to the last three years where they sold off more quickly, adds O’Sullivan, who observes that risk assets (real estate, equities, some alternatives) have done well and that client risk appetite has increased markedly

since the summer. “Equities will do well again next year and real estate will continue to benefit outside the supercharged markets of London, Tel Aviv and Dubai. The ‘surprise’ for 2014 will be a realisation that govern-ment bonds are more risky than previously thought – there will be a continuation of the sell-off in fixed income and by this time next year yields could be down to around 3.5%.”

Possible tail risks include emerging mar-kets suffering economic crises. “This has already been priced into some markets such as Russia and China, but India and South Africa remain vulnerable. There will defi-nitely be more volatility in emerging markets in 2014,” he says.

CouttsAccording to Ian Ewart, head of products, services & marketing at Coutts, the change to the regulatory environment in the UK and the introduction of Retail Distribution Review (RDR) rules will have considerable implications into 2014 and beyond.

Internationally, while Hong Kong and Singapore have not adopted RDR language, he says there is a case to be made that simi-lar disciplines and regulations are being introduced in everything but name. “This signals a move to an unbundled pricing

regime for clients. The unintended conse-quence is that there is a whole tranche of cus-tomers who are unwilling to pay for advice and are increasingly driven to self-service through providers of data insight.”

Ewart also refers to a move towards con-solidation. “Given that we are still in the process of trying to repair much of the loss of trust in banks, the industry is vulner-able to newcomers or those who decide they have the tools to reinvent themselves as a wealth manager.”

societe GeneraleThe most significant trend in 2013 has been the restructuring taking place against a background of slow growth in Western countries, contrasting with fast growth in emerging markets and driven by the weight of regulation and compliance issues putting pressure on margins and costs.

That is the view of Societe Generale pri-vate banking head Jean-Francois Mazaud, who refers to a number of banks right siz-ing their operations, reducing the number of client geographies they follow and, in some cases, withdrawing from markets they do not consider to be key in order to con-centrate on those where they have critical mass, coupled with a rise in client demands

aNalysIs: 2014 ROUNd-UP Private Banker International

Happy New Year?Changes to regulation, emerging market performance, economies of scale, internal restructuring, clients’ perceptions of value – these are the factors exercising the minds of the leading global private banks as they look ahead to 2014, Paul Golden speaks to 8 private banks

Ian Ewart, Coutts

Salman Mahdi, Deutsche

Asset & Wealth Management

Philip Harris, RBC Wealth

Management.M O’Sullivan, Credit Suisse


aNalysIs: 2014 ROUNd-UPPrivate Banker International

and expectations.“When looking at the financial perfor-

mance of the industry, my answer to the question of whether the industry has lived up to expectations this year would be ‘no’ for most of the players. However, with regard to the restructuring or repositioning move-ments underway in some countries and in some banks, I would say ‘yes’, as the indus-try seems less inclined to resist the changes which need to be made.”

Mazaud is convinced that 2014 will be another year of heavy restructuring for the private banking industry, at least in Europe, probably with further consolidation ahead.

“I believe as well that 2014 could be a year of growth opportunities, served by more sup-portive markets, the accentuation of risk-on appetite from our customers and gains in market share for the leading franchises.”

BNP ParibasThis theme is taken up by Vincent Lecomte, co-head of BNP Paribas Wealth Manage-ment. “Next year will see a continuation or acceleration of current trends. Consolida-tion in most regions will continue as major players refocus on their core markets. We expect to see more competition, particularly in high growth regions such as Asia and with ultra high net worth clients. We also anticipate increased investment across the industry as banks continue to develop and retain talent, enhance their digital offerings and adapt their advisory models.”

He describes the environment in which private banks operate as increasingly com-plex. “Regulation around tax compliance and customer protection and changing price policies are contributing to this complex-ity. In addition, competition for business is growing and we are also seeing more demanding clients with higher expectations in terms of quality of service, digitalisation and product innovation.”

aBN aMRO Private Banking International Scale is a vital consideration according to Jeroen Rijpkema, CEO ABN Amro private banking international. “Critical mass is becoming increasingly important in order to be able to achieve the right economies of scale. A private bank needs to manage a minimum of €15-20bn in a country, oth-erwise it is not sustainable to invest in or expect to see bottom line results.”

Stricter regulation is one of the reasons private banks are looking at the size of their activities and considering whether to divest or close down sub-scale activities, he contin-ues. “That is not always easy to explain to clients as certain rules or regulations, which will ultimately benefit clients and the indus-

try, might come across initially as adminis-trative and bureaucratic.”

deutsche asset & wealth ManagementSalman Mahdi, head of key clients rela-tionship management & corporate finance partnership at Deutsche Asset & Wealth Management reckons the rebuilding of the trust relationship between the client and their wealth manager is one of the key devel-opments of 2013, alongside an increase in investors’ risk appetite.“On the first point, the key drivers have

been increased transparency and simplicity of investment products and ideas. On the sec-ond, the economic cycle has to a large extent driven demand for equities and a transition away from fixed income. Alternative invest-ments are also being looked at more favour-ably - notably, we have seen very significant fund raises in private equity. Clearly, these trends continue to be driven by the low inter-est rate environment. During 2013 we saw a primary focus on developed markets, but as the year is ending we are seeing the re-emergence of interest in developing, high growth markets.”

Wealth creation has continued unabat-ed, with particularly strong growth in the ultra high net worth segment and Deutsche Asset & Wealth Management expects this to be the biggest growth area for the fore-seeable future.“For private banks, pressure on revenue

margins continues,” says Mahdi.“In this environment, the challenge for the industry is to ensure the sustainability and longevity of client relationships, while also streamlin-ing business models. Against this backdrop, we continue to believe that the universal banking model is best suited to provide a cre-ative and efficient private banking offering.”

His expectations for 2014 are for further momentum around delivering performance in a more transparent manner and improv-ing the client experience, especially through enhancing the technological interface between clients and banks.“Lending will remain an important lever

to deepen client relationships. With the low interest rate environment likely to continue, we will see growing demand for greater portfolio diversification, with an emphasis on investments with yield generating poten-tial. The renewed industry focus on business culture, ethics and values will become even more important.”

UBsUBS global CIO, Alexander Friedman high-lights the importance of diversification in portfolios over the next five years. “It makes sense for investors to take stock of some of

the structural shifts underway and re-orient their strategic portfolio holdings,” he says.

RBC wealth ManagementThe most significant change in private bank-ing this year has been in the type of advice that clients are seeking, observes Philip Harris, head of private client wealth man-agement UK at RBC Wealth Management.

“We have seen a concerted move away from advisory services in favour of the discretion-ary model. I believe that this is a visible reac-tion to the gradual signs of market recovery that we have seen over the year and ongo-ing recognition of the value that investment specialists can add when it comes to wealth preservation or growth,” he says.

The 2013 World Wealth Report (which RBC Wealth Management produces in partnership with Capgemini) showed that a strong proportion of high net worth indi-viduals globally continue to have a high level of trust in their wealth managers, while their confidence in the markets and in regulators waned.

According to Harris, this is evidence of the opportunity for talented advi-sors armed with a comprehensive set of wealth management tools to provide a valuable service to an ever growing pool of wealthy individuals.

He does not expect any major strategic shifts in 2014, but rather a refinement of private bank business models. “In the wake of RDR and a tighter operating environ-ment, trying to be all things to all people is simply unrealistic. Next year will inevi-tably see more consolidation in the indus-try as businesses look to crystallise their proposition and define their target segment within the marketplace. Fundamentally, firms that can adhere to a well-considered strategy with the support of a strong team of bankers and specialists will continue to make good headway.” <

JF Mazaud, Societe Generale


INteRVIew: RORy taPNeR, COUtts Private Banker International

Just over three years ago, RBS bravely swept aside the old leadership at Coutts in an initiative fundamentally to shake up the London private bank.

That decision, taken when the tailwinds of the global financial crisis was still stressing balance-sheets, has more than fulfilled the vision of its architects to take Coutts firmly into the 21st century.

Coutts has just outstripped Barclays to become the largest of the British private banks, measured by assets under management. Independent data compiled by PAM Insight shows that, at end-2012, Coutts had £51.7 billion versus £50.2 billion for Barclays Wealth, traditionally the leading advisory firm in the UK.

It’s clear the bank has become a very sale-able asset, judged by the feelers put out by those who would love to buy Coutts and make it the centre-piece of their own wealth management ambitions.

Still, Rory Tapner, the Coutts CEO hired three years ago for the makeover task, tends to downplay that switch at the top of the league tables.“I think it is more important to look at

the quality, rather than sheer quantity of the business,” he told Private Banker

International. Barclays has some 800,000 customers compared with our 70,000 in the UK - “So it’s obvious our clients are significantly more wealthy.”

In fact, Coutts may redouble efforts to attract clients with higher investible assets. Last year it raised its assets threshold to £1 million from around £500,000 in order to make more money from advisory.

Now, says Tapner, the bank may look at raising that figure again.

Would he move to a £2 million or even a £5 million client assets test? “I’m not going there,” the Coutts head says carefully.

“But the whole (wealth) industry is under pressure to cut costs and drive revenues, and share-of-wallet, however it can.”

Rory Tapner himself was recruited from a senior role with UBS in Asia to take on the Coutts top job, joining in August 2010.

He speedily recruited a cadre of top

How Coutts became queen of the private banking catwalkAfter an intensive programme of upgrading, Coutts has seen a satisfying payback for its makeover- it ranks as the largest private bank in the UK, overhauling long-time rival Barclays Wealth. So, how did the fusty old biddy Coutts transform herself into a svelte supermodel? John evans sits down with Coutts CEO, Rory Tapner, to ind out more

so, is Coutts really for sale?

Recurrent speculation has it that Coutts

could be sold of f as parent RBS seeks a

range of assets to divest and strengthen its

capital position.

Based on its current £513 billon of client

assets under management, the private bank

could be worth as much as a very useful £2.5

billion-£3.0 billion to RBS.

And it ’s no secret that Coutts has had

a number of quiet approaches to see if it

were available to a suitable purchaser at

the right price.

“Coutts is not for sale,” says Rory Tapner

bluntly, noting that this stance that has been

taken publicly by RBS CEO Ross McEwan.

He adds, “If you ask me whether Coutts is a

much more valuable asset nowadays to RBS,

I would say yes. Is it a company today now

regarded as a business in its own right, yes.

Does that mean a sale, no, certainly not in the

foreseeable future.”

In fact, Coutts was a vastly valuable fund-

ing channel for RBS at the height of the

f inancial crisis when analysts suggest that

the bank was daily shipping up to a net £20

billion to Edinburgh from its deposit-gather-

ing base. That figure has now shrunk back to

more normal levels.

None the less, it underlines the Coutts

value to RBS should the financial crisis again

break out as a result of factors like chronically

weak banks in the Eurozone.

What is clear is that RBS plans an accel-

erated divestment of its US banking arm,

Citizens Financial Group. An initial stake in

Citizens will be sold in the second half of 2014

and the rest by the end of 2016. RBS’s origi-

nal plan had been to launch an initial public

offering in 2015.

But if a Citizens’ IPO is not possible to get

away or investors turn bearish on US regional

banking assets, then Coutts is an obvi-

ous candidate to be put forward as a jewel

of an asset sale.

C h an c e l l o r G e o r g e O s b o r n e, i t i s

under s t ood, woul d be suppor t ive of

such an initiative.


performers, including putting veteran banker Michael Morley in charge of Coutts UK and bringing in marketing boss Ian Ewart, formerly of Barclays, to help set in motion a thorough-going overhaul of Coutts.

Tapner says there was “more to fix than I had imagined,” not only at Coutts itself but because the whole advisory industry was in a state of flux as new regulations came into force. That included rules like conduct risk and, in particular, the Retail Distribution Review.“All this took an enormous amount of

time,” he recalls. Coutts can now boast of some £2.7 billion under advisement in RDR-compliant advisory, understood to be one of the largest figures in the industry.

One of the first decisions taken by the new executive team was to simplify the geography of the business, reducing the spread of coverage internationally, partly as cross-border regulation became more onerous. The Latin American business was sold and Coutts largely exited from Africa.

(Coutts takes quiet satisfaction in noting that rivals like HSBC, Barclays and Credit Suisse have been similarly contracting their geographic coverage of late, cutting out countries where it’s not economic or prudent to do business).

Overall, Coutts has cut client coverage in 100 countries. Tapner says he is looking to extend this to about another 20 territories.

That compares with the 180 countries which the bank had originally been servicing. At the same time, Coutts has been investing significantly in markets with much greater potential, such as parts of Asia and the Middle East.

Next, Coutts decided it was offering too many products and services, often with no real return on these operations. It honed down the total offering and put its investment management and asset allocation business “more at the centre of the advisory business,” building on its traditional strong banking operations.

Coutts insiders say that meant pretty aggressive sorting out of advisers and bankers to hit the new requirements on performance. Tapner himself is on record as saying he wanted to “put pressure” on staff to meet Coutts’ new ambitions.“We’ve been identifying our best leaders

and upskilling existing talent by introducing targeted succession and development programmes. While we have hired over 2,000 new employees during the last three years, we have also lost a similar number through a combination of retirements, resignations and redundancies,” says Tapner.

He emphasises: “Our organisation is

more strategically aligned to our business plan and a lot stronger, today.”

In fact, total staff levels are now slightly higher - up around 3.5%- since Tapner took the helm.

A c e n t r e p i e c e o f t h e C o u t t s transformation has been the fundamental upgrade of technology and rationalising 27 operating systems down to one core system, so wiring up the whole bank coherently and enabling increasing digital contact with clients.

The platform chosen was Avaloq - a system, which Tapner asserts, makes Coutts rugged from an IT standpoint even though the bank is only at 50% optimisation with

“still some way to go.”He explains: “I am now future-proof on

technology, and the quality and resilience of our risk systems, asset allocation model and the like. There is a whole raft of things we can now do.”

That includes reaching out to clients via their mobile devices and related touch points.

Coutts has just launched enhancements to its mobile service, which now provides clients with access to their investment por t fol ios , in addit ion to banking services. The investment capability will be available to clients using the Coutts app

- which was launched last year - and via tablet and desktop.

Clients will see their investment overview updated on a daily basis, allowing them to contact Coutts to undertake a trade or change their investments mix.

For Tapner, digital channels will be a key to the future of private banking, as it encounters increasing amounts of regulation and measures to protect investors as well as meeting the demands of clients for ‘private banking in their pocket’ mobile services.“All this regulation means that we, as

advisory companies, will all tend to have similar advice models and similar products. Therefore, the industry will be differentiated more by levels of service and by the channels

employed to get to our clients.“And that means you will see more

digital channels, built around skilled human advisory services,” Tapner says. He would not be surprised to see as much as 30% of the client-adviser interface will be

“digitalised” within five to 10 years.This implies, the Coutts chief says, “that

private banking services will be better managed in the future by smaller, more responsive and proactive smaller firms, employing all the current and future digital touch points, rather than by the big, bureaucratic industry giants.”

Finally, Tapner takes pride in putting lustre on the Coutts brand, one of the most visible in the global wealth business.“Frankly, the brand had become tired

and too traditional, in the sense of not changing. What we’ve done represents a refreshing of what the Coutts brand stands for, not only as an historic business but one that also encompasses a really modern responsive private bank.”

(Within Coutts, it’s felt that two potential blows to the brand - settling a controversial case with high-profile clients like Sir Keith Mills, the airlines investor, over their AIG premier bonds investments, and the UK regulatory fine of £8.7 million relating to flawed money laundering controls - were largely legacy issues from the past, rather than causing brand damage).

Despite the cost of investment in its upgrades, Coutts continues to generate healthy profits for its parent. The RBS wealth division, of which Coutts is the chief component, posted an operating profit of £172 million for the first nine months of 2013 compared with £167 million for the year-ago period.

Total net interest income for the division, generated primarily from the banking side, reached £816 million for the first nine months of the year, down 9% year on year, reflecting lower spreads on a number of deposit products. Non-interest income, from the investments side, was 5% lower as market volatility led to a decrease in investment income.

Over the past three years, all this high pressure change, Tapner confesses, has

“rather exhausted the organisation....”He concludes: “We’ve not only had

to change Coutts but do a mountain of preparation and training for incoming regulation at the same time. Everyone at Coutts has a lot to be proud of. Perhaps it’s time for the management of the organisation to do a little less, now we have equipped all our staff to take us forward...“For (Coutts) is in much better shape than

two or three years ago.” <

INteRVIew: RORy taPNeR, COUttsPrivate Banker International

“what we’ve done represents a refreshing of what the Coutts brand stands for, not only as an historic business but one that also encompasses a really modern responsive private bank.”Rory Tapner, Coutts


The Swiss/US standoff stems from the close scrutiny given to clients keep-ing assets offshore by US authorities. It culminated in 2008 when UBS

received a fine of US$780 million for pro-viding banking services to US clients with undeclared accounts.

Bank Wegelin, Switzerland’s oldest bank, was another target. It closed its doors earlier this year, having agreed to pay a $57.8m fine.

Stephen Wall, analyst at research group Aite Group, says: “When the IRS won the UBS case they then knew that they could go after anyone else too. Consequently any-one who wants to service US clients must operate within the law of the US, as well as the wealth manager’s own country. The old offshore model is dead and anyone wanting to serve the huge US market must be open, transparent and fully compliant.”

The initial reaction from Swiss wealth managers was to step back and consider the business case for continuing to operate within the confines of a strict regulatory environment. But things have now moved on and the positive outcome is a market full of potential with few ‘known unknowns’ when it comes to operational requirements.

Jochen Vogler, executive director at Swiss wealth management group Bellecapital

International, says: “From a Swiss perspec-tive we think that the US market is being reshaped. The very positive aspect about the US is that its increased level of regulation has led to a refreshing clarity over the legal requirements that need to be followed. This means advisors can actively pursue business and have a concise playbook by which to organise themselves.”

Volger believes client service, competitive pricing, and attractive risk-adjusted invest-ment performance will now come to the forefront of the client acquisition process.

Indeed, although the cost of compliance is high, the US is full of opportunity. The 2012 Capgemini report said there were 3.7m wealthy individuals with $12.7tn of wealth in North America, up 11.7% in 2012. Figures by Boston Consulting, in its 2013 Global Asset Management report, suggested that private wealth would grow to $48.0tn by 2017 but that half of this would come from new wealth.

OnshoreA lot of the potential comes from the onshore market, which is largely untapped by international advisors to date. A growth in international outlook by this group will serve Swiss advisors well.

Vogler says: “Wealthy domestic US inves-

tors, that until recently had little or no inter-national interest, are an interesting future clientele. They are slowly beginning to look further afield and realize that their overall portfolio allocation and risk management may benefit greatly from international diversification. It is a slow process due to the well-established home bias of both domestic investors and their advisors.”

Secondly, the US onshore market has an asset protection angle that has much to do with capital preservation (as opposed to creation or growth).

Dominique J. Spillmann, CEO at Swiss Partners Advisers, says: “The clients’ inter-est in global diversification in terms of cur-rency and assets often goes hand in hand with considerations over asset protection. The European wealth management culture is historically much more geared towards capital preservation than the US and there is also the advantage of being able to ring-fence assets with suitable asset protec-tion structures.”

OffshoreThe offshore potential is also good. Here globalization and an international lifestyle means that an increasing number of wealthy individuals or families have some sort of US exposure, requiring specialist advice and

FeatURe: Us/swIss BaNKING Private Banker International

US/Swiss business set to riseThe past few years have seen Swiss wealth managers shy away from the US market. But a comprehensive rule book to date, has transformed the market to allow business to once again be done. For those with longevity, commitment and contacts the prospects are very good indeed. alison ebbage reports


structuring; either before the exposure to the US has occurred or on an ongoing basis but most importantly ensuring that the indi-vidual or family is structured in such a way as to be both efficient and compliant.

Yann Rousset, investment advisor at UK-headquartered MASECO Private Wealth, explains: “Even if just one member of an extended family has exposure to the US authorities there are huge repercussions. This is a big growth area and national tax systems are inherently at odds with globally mobile family networks.”

Spillmann believes that for non-US resi-dent individuals or families with either a single or a number of touch points with the US, the key is to capture them and conduct as much pre-planning as possible. “In that particular business it is all about having a robust team of legal and investment experts to be able to keep assets in the most effi-ciently structured way possible. Once they qualify as taxable assets in the US, then it is about minimizing tax exposure by invest-ing into suitable securities and knowing US tax law in order to optimize short-term and long-term capital gains and income tax con-sequences,” he says.

US exposure for trustees is also some-thing that Swiss advisors can help with; gov-erning offshore trusts with US beneficiar-ies is becoming more difficult and so again expertise surrounding regulatory, tax and counterparty risks is valuable and Switzer-land has a long history of doing just that.

Vogler says: “Trustees are bound by their fiduciary responsibilities to find the best solutions for their trust clients, which includes a specific skill set and regula-tory knowledge for their US-connected clients. There is a noticeable shortage of this relevant knowledge and expertise at the present time.”

It is no surprise then that after the ini-

tial standoff, so many firms have sought to become SEC registered and compliant. Wall comments: “When UBS was indicted only four major players had SEC registration but now the number is in the mid-30s.”

He says the seven banks with active SEC units in Switzerland are: UBS Swiss Financial Advisors, Pictet North American Advisors, Vontobel Swiss Wealth Advisors, Kaiser Partner Financial Advisors, RBC Investment Advisers, Reyl Overseas, and Syz Swiss Advisors.

“The other 27 registered firms are mostly independent asset managers with a handful of multi-family offices. In terms of future growth, it is the IAMs that are more commercial.”

But being successful when it comes to the US market is about much more than SEC registration. Indeed arguably the door is already closed to those without the exper-tise, cultural understanding and connec-tions that longevity within a market brings.

And the relatively high cost of doing busi-ness in Switzerland was never solely about banking secrecy. The cost of business, the reliability of the country’s financial system, the superior service levels and the like also command a premium, according to Rousset.

He believes that going forward these ele-ments will remain but attention will be much more focused on performance and planning. Rousset explains: “SEC registration is really just the tip of the iceberg. Obviously without it a wealth manager cannot advise US-dom-iciled clients compliantly but the new chal-lenge is how to provide performance that is net of tax. Without that it is nearly impossi-ble to justify a fee to clients and so capturing and retaining becomes a real issue.”

In essence the skill set is twofold: the right investments and the ongoing tax plan-ning to reduce the tax bill and so maximize the net return.

The dual challenges of tax efficiency and net investment returns become even more important in a global context. Rousset says it is only a matter of time before the EU replicates FATCA. “Being able to respond to new regulation as well as having a good reporting capability when it comes to things like withholding tax is essential going forward,” he says.

Custody and admin are another value added in a reporting and independence context. Although the client selects his or her own custodian the advisor can help add appropriate insight.

“Because of our long-lasting relationship and the size of assets we have with those banks, we can offer our clients custody fees that are deeply discounted. Getting access to good custodian banks at fair prices is not easy today,” says Spillmann.

Such agility, when it comes to providing a tailored service, is one reason why the independent asset managers are outnum-bering the private banks. Since 2008 the wealth management client base seems to be generally distrustful or large institu-tions and has tired of their tendency to streamline and tendency to push out in-house products.

Vogler says: “The strategic advantage of being smaller is that it allows for a better tailoring and a more hands on relationship and personal approach. Flexibility and independence are a winning duo.”

But is the US market open only to the Swiss or do other centres also hold the req-uisite amount of expertise and knowledge?

Certainly London would be a good bet, culturally, but it tends to look more to the institutional market. Hong Kong and Sin-gapore too, could be contenders but are currently considered to be more commer-cial than retail centres.

Rousset comments: “Switzerland has first mover advantage and a long history of quality when it comes to responding to the needs of wealthy individuals and families.”

He adds: “Ultimately the UBS case was the beginning of a speedy and harsh pro-cess where both client and provider had to then weigh up the benefits. But what is now coming to the fore is that those with lon-gevity in the market are very well placed to be leaders going forwards.”

Wall agrees: “Now is a good time for Swiss advisors to get in there and become dominant - they can mop up where oth-ers have pulled out, get in there before other jurisdictions are up to speed with the SEC, get ahead on US expats who are now touched by FATCA and also look at the onshore market as well as others who have been caught in the US tax net.” <

FeatURe: Us/swIss BaNKINGPrivate Banker International

Stephen Wall, Aite Group Yann Rousset, MASECO Private Wealth


The Chinese have an old proverb, ‘fu bu guo san dai,’ or ‘wealth never survives three generations’ and Asia’s rising generations are finding ways to avoid

the historic curse.The concept of family offices created in

19th century America and Europe is only starting to gain traction two centuries later in Asia as the region benefits from tremendous growth rates in recent years.

With more than 80% of Asian businesses family-owned and around of 80% of wealth in the region estimated to be passed on to the next generation over the next 15 years, the competition among wealth managers is heating up for a slice of business from the wealthiest clients.“The liquid assets which private banks

manage are actually a small part of their overall wealth as most are tied in the busi-ness. Families have got to the stage where they need more coordination and structured services,” says Nisha Singh, senior lawyer for private clients at global law firm, Berwin Leighton Paisner.

According to research by Citigroup, the number of family offices is set to triple in Asia within the next decade. The potential is against the backdrop of the wealth of the region’s 3.3 million high-net-worth-individu-als expected to triple to $15.81trn by 2015, estimated by Swiss private bank Julius Baer.

signs of growthEncouraging signs of growth are emerging in Singapore. A year ago, Singapore Manage-ment University launched Business Families Institute (BFI) backed by government to build an ecosystem buttressing the boom of family offices.

“Three years ago, there was a conscious attempt by the Monetary Authority of Sin-gapore to have the right ecosystem of profes-sionals, lawyers, private bankers (we already have such a nice catchment area) to support the family offices set-up,” says Professor Annie Koh, academic director at BFI.

With the region’s wealthiest at the cusp of wealth transference, the initiative underscores Singapore’s commitment to prolong the lon-gevity of family riches beyond generations. The move is also upping the ante of growth potential of family offices in Asia, which is still in its infancy despite notable growth of regional investable wealth.

The population with $1m in investable assets in Asia has grown 31% with their com-bined wealth expanding 27%, well above the world’s average of the respective 14% and 9%, the latest report by Capgemini and Canadia’s RBC Wealth Management found.

Asia also expanded at the fastest pace for private wealth last year, rising 13.8% to $28tn, according to Boston Consulting Group Global Wealth Report 2013.

As an indication of the scale of potential for family offices in the coming years, Rich-ard Straus, head of Citigroup Private Bank, expects the number of Asian family offices to rise to 1,500 by 2015.“More $100m and $1bn wealthy families

will be created in Asia in the next 10 years than anywhere else,” says Richard Wilson, chief executive of Family Offices Group.

Currently, Asia is estimated to have only around 100-120 single family offices in con-trast to some 2,000 in Europe and North America, according to research company Campden Wealth.

However, such figures are to be taken with

a grain of salt as they are measured under Western standards and do not reflect Asian context, cautioned Bernard Fung, head of family offices at Credit Suisse Private Bank.“The family offices that we work with will

most likely not be in the survey but they have significant pool of capital,” he says. “We are creating the family offices of tomorrow.”

In fact, Credit Suisse’s Singapore family office hub was established in December 2010 with this in mind: to help clients establish a family office as well as facilitating an open architecture for existing ones.“The family office has to be run by a per-

son they trust and we work with that per-son who has been tasked and identified to us,” Fung says.

asian Next-Generation changing needsThe aftermath of the global financial crisis has eroded much trust in several large pri-vate banks as wealthy clients became wary of their sales culture.“When the crisis came in 2008, banks suf-

fered and were ranked very lowly in the area on whom to trust,” says Professor Koh.“Although trust levels remain low, they have

improved. Many families do recognise the need for trusted advisers because they have certain expertise that adds value,” she adds.

According to a recent joint report by Deloitte and BFI, trusted non-family advi-sors are growing in importance to facilitate leadership turnover. Successive generations are also more open-minded to accept non-family member management in the business. A sobering study by Capgemini revealed that about 30% of Asian family businesses survive into the second generation and only 10% into the third.

aNalysIs: FaMIly OFFICes Private Banker International

Private banks limber up to family offi ces boom in SingaporeAs family ofi ces rapidly expand in Singapore, private banks are left with little choice but to strike mutually benei cial partnerships to manage the rising fortunes of Asian tycoons, writes Caroline Ng


As the new generation of the ultra-rich gets increasingly well-educated and worldly, the needs of family offices have also grown more complex. The next generation demands a more holistic international approach to meet their diverse needs such as tax compliance in different jurisdictions, philanthropy and lifestyle management. They also have the tendency to major in fields outside their tra-ditional family business.“They come back with new ideas and

they might be the one who are saying to the family that we really need to be think-ing about succession and family govern-ance,” says Singh.

Daniel Harel, head of UBS Global Family Office for Southeast Asia backs the senti-ment: “This is where Asian clients find the need for proper structures for orderly con-trol, management and transfer of wealth and businesses over multiple generations.”

Apart for the growing desire for a sophis-ticated structure, Asian family offices are also purported to have a larger risk appetite compared to world averages.“I find that in Singapore there is an expec-

tation to see double digit returns by some family offices whereas most family offices elsewhere are happy with 6-9% returns overall in their portfolio,” says Wilson.“I do think it is partially a generational

thing and partially due to the real estate valuations ramp up in Singapore but those expectations may have to come down over the next 20 years,” he adds.

Harel agrees: “Asian clients are likely to look at their investments from the point of view of building up their wealth and are seeking higher returns (and risks).”

However, this may largely be the case for the newly affluent. Credit Suisse, for exam-ple, sees wealth preservation as a dominant concern for its clients as most are transiting from the second to the third generation.

Pull and Push factorsAs an economic engine for global growth, Asia’s prospects are alluring to European and North American family offices in economic doldrums.“They [non-Asian family offices] say in

order to access to Asian opportunities, we need to be in Asia, we are no longer satis-fied managing risk or returns simply through a Bloomberg terminal half-way across the world,” says Fung.

Stricter regulations such as the Dodd-Frank Act and Securities Exchange Commission Fam-ily Office Rule in the United States together with the eurozone crisis has also pushed many family offices there to consider expanding into emerging markets.

Backed by a robust financial infrastructure, sound regulations and political stability, Singa-pore has emerged as an attractive base for the ultra-affluent.

Meanwhile, the private banking landscape in the city-state is also rapidly changing along with major consolidation. Societe Generale is in the process of selling its Asian arm, with DBS as the front runner to acquire the busi-ness. If successful, the deal could bridge sig-nificant geographic and segment gaps that benefit clients.

a synergised ecosystem: Big and BoutiqueWith growing numbers of elite clients finding the alignment of interests by private bankers problematic, some large private banks have responded by ramping up dedicated family services tailored to their needs.

In 2010, Swiss banking giant UBS estab-lished a Global Family Office in the Singapore. Other major players include Credit Suisse, HSBC, Citi Private Bank and Singapore-based DBS Private Bank. The move underscores the long term commitment some private banks have in place for clients.

However, such move “is a trust call and only

banks with very deep pockets can do this,” says Professor Koh.“Private banks must consider what exactly

are the family needs right now and it may not lead to new money being given to you. So, there may be a pressure but those who do it right know it is beyond managing money,” she adds.

Some of the main adjustments private banks have taken included using a different set of financial matrix for the family office unit.“The unit and the management recognise

that for the long term families that we work with, measuring something on a daily, weekly or monthly basis doesn’t make sense at all,” says Fung. “I’d rather get the big picture right.”

The alliance of private banks with inde-pendent advisers of family offices helps to gel synergies that yield mutually beneficial results. For example, relationship managers could now better perform advisory work underpin by a deeper understanding of the family office’s ecosystem of a family lawyer and accountant.

As custodians to execute trades coupled with the much needed lending capabilities, private banks will always exist to offer investment bank services and serve the backend of family offices. The facilitation of an open-architecture can also help family offices to conduct due diligence as well as investing directly in a pri-vate equity fund.

Fung believes an open architecture benefits clients as no provider can be an expert of eve-rything and the platform offers the ability to work with the best class providers of funds, services and products. The view is echoed by Professor Koh: “They each have a role,” reflecting a synergised ecosystem.

sharing the economic pieAs the global shift in wealth continues, pri-vate banks which are able to look beyond the traditional cantons of banking are set to benefit in times of featherbedding and excess.

While boutique may retain a certain cachet of exclusivity in a close-knit family business, their collaboration with private banks could help boost the family legacy through sophis-ticated expertise, including accessing global deals in the debt and equity markets.

Against the backdrop of Asia’s economic growth trajectory and scope for investment portfolio diversification, Singapore appears to be well placed for family offices to grow given the support of a robust government-backed ecosystem.

The Monetary Authority of Singapore says: “Family offices have cited our deep pool of fund management expertise (particularly in the area of Asian investments), the relative ease of setting up businesses and our cost-competitive environment as reasons why they have set up operations in Singapore.” <

aNalysIs: FaMIly OFFICesPrivate Banker International

82%

Development: To mentor the next generation for crucial roles in the business

Selection: To exercise objective judgement withminimal emotions for personal interest

Transition: To facilitate the transfer of controland management from one successor to another

Monitor: To keep the family on track in terms ofits succession plan, and to plan for contingencies

Family: To enable communication and manageconflict by focusing on the business.

53%

63% 69%

49%

n Us PReMIUM

what are the benefits of including non-family advisors in a succession plan?

Source: Deloitte/SMU ‘Asian Business Family Succession’ , November 2013


COUNtRy sURVey: Us Private Banker International

Despite the United States’ current stronghold as the world’s top spot in number of HNWIs, industry experts have predicted that emerging mar-

kets, particularly China, could soon over-take the US. Analysts have predicted that it could take place within the next fifteen years. Jack Garniewski, director of the Wilming-ton Trust family office, part of the larger Wilmington Trust private bank in America, believes that while ‘we still have our posi-tion’ there is a ‘lot more wealth being cre-ated globally’ and that America could well be overtaken in the next couple of decades.

Once China gains more recognition, the US could face significant competition in high-wage sectors, especially as their prod-ucts begin to gain brand recognition. Moreo-ver, China has recently emerged as a major player in the worldwide economy, especially in regards to trading. It adds another area of the world that America must compete with. Shockingly, some reports have forecast that the Asia Pacific region’s wealth could surpass North America’s as early as next year.

trouble from all anglesRecently, many difficulties have been com-ing from abroad and not just from China. European struggles have seriously hindered private banks in the US. Several American banks have significant exposure to the trou-bled EU market, which could be entering a double dip recession, according to industry experts. For example, a large proportion of the US equity market is derived from Euro-pean investors, an investment which will continue to decrease if the economy contin-ues to struggle.

More importantly, it is not only foreign markets which are causing problems, but also the economic situation in the US. The years ahead hold many potential pitfalls. The lack of economic stability in the United States has been prevalent for the last five years and it is expected to continue. The property market in particular is trouble-some. The market has declined every year since 2006, before the global financial cri-sis, and shows no sign of slowing down or stabilising. The effect has been more wide-

spread than simply hitting wealth. Con-sumer confidence in the sector has greatly fallen, which affects more than 50% of US individuals wealth.

However, the situation is not all doom and gloom. The US has the highest number of high net worth individuals (HNWIs) in the world. In 2012, there were approximately 5.8 million HNWIs in the United States with a combined wealth of $21.7 trillion. In com-parison with wealthy countries worldwide, the United States looks even more impres-sive. Japan, the second wealthiest coun-try, only had 1.9 million HNWIs in 2012, compared to the US’ 5.8 million. Germany is even further behind with just over 1 mil-lion HNWIs. These three countries togeth-er account for 53% of the HNWIs in the world, but America clearly accounts for a large chunk of that group.

After years of stagnation, business invest-ment rose by 8.4% this year, mainly result-ing from the rise in income. Growth is mod-erate and the will to spend, in both the con-sumer and in business, has risen. The labour market is as flexible as ever, which keeps the

US competitive. The ratings agency, Stand-ard and Poor, has upgraded the country’s outlook from negative to stable. All of these improvements could benefit the private sec-tor and, in turn, the private sector could be of great benefit. If the situation continues as predicted, it could strengthen the country’s GDP by 0.2% in the years 2013-2017.

According to sister company, Wealth-Insight, by 2017, there are expected to be nearly 10 million HNWIs in the country owning $39.5 trillion altogether. These esti-mates are not unlikely considering the local HNWI wealth has increased by 57% from $13.8 trillion in 2008. Of the 5.8 million HNWIs in the country, the prime target for many private banks is the 44,934 ultra high net worth individuals (UHNWIs) that reside in the US. On average, each of them is worth $138 million with 443 individuals reach-ing the billionaire category. However, while America currently leads in this department, Asia is expected to have a larger UHNW population by 2032 and to have a greater UHNW wealth by 2024.

With the sheer amount of wealth in the

Could the United States lose its championship title?The global economic crisis, the most signii cant downturn since the Great Depression, greatly affected the i nancial sector worldwide, both i nancially and reputably. Five years later, the United States looks to be recovering, but is it enough to ward off competing markets or to regain the high net worth population’s trust? Patrick Brusnahan and WealthInsight look at the current state of private banking in the US

Stephen Campbell, Citi Private BankJack Garniewski, Wilmington Trust


COUNtRy sURVey: UsPrivate Banker International

country, it is no surprise that private bank-ing is a leading industry. In the top twenty largest global private banking branches in the world, eight of them are American; with three, Bank of America, Wells Fargo and Morgan Stanley, breaking into the top ten. 13.6% of the country’s HNWIs, and 15.4% of their UHNWIs, made their money through the financial services. This is the largest percentage of any industry. On top of this, the number of individuals acquir-ing their wealth through the financial sector increased by 63% between 2008 and 2012.

Due to the large amount of HNWIs in the United States, the competition to secure their business is extremely high. The strong competition between the three main sec-tors, private banks, wealth managers and family offices, has forced many to extend their offerings to gain a larger market share among the country’s huge wealthy popula-tion. One of the particular ways that Ameri-can private banks differentiate themselves to others worldwide is their client criteria. They accept clientele with a low of $1 million in assets when the general worldwide model is to only accept those with over $5 million.

Competition begins to riseIn the aftermath of the global financial crisis in 2008, many of the larger private banks suf-fered significant damage to their reputation. This led to much trepidation when investing with private banks. Many chose to seek the advisory expertise of wealth managers and family offices instead, which were more tai-lored wealth management services with much deeper engagement.

Garniewski said the ‘security clients once felt’ had been damaged and has to lead into ‘recalibrated thinking’ when it came to the private banks. Another problem was the feeling that the goals of private banks, par-ticularly investment bankers or proprietary trading arms, did not match with the inter-ests of their clients. In addition, more UHN-WIs were looking towards family offices and wealth managers rather than the traditional private bank, having a severe impact on the big players.

Single family offices were created by wealthy families to manage their investments and finances, especially after the demise of Lehmann Brothers. BNY Mellon’s head of international wealth management and client segments, Don Heberle, says: “private inves-tors today are seeking a higher degree of per-sonalised advice delivered by a trusted advisor who can simplify the increased complexities of today’s markets. Trusted relationships and honest, straightforward communication and transparency are valued significantly more than transactional investment models.”

Due to the cost of this malleable form of wealth management, it is limited to those with more than $100 million. Those want-ing to explore that option, but are only valued between $30 and $100 million can join a multi-family office, which lets fami-lies co-invest and share costs between them. These two different versions also compete for clients, but less so, due to the difference in wealth level that they work with.

Wealthier families swung heavily in favour of family offices after the 2008 financial cri-sis. For example, now 30% of family offices are located in New York, the largest area of wealth in the US. A key factor was that fam-ily offices can provide more customisability than other options. Strategic outsourcing has enabled family offices to be capable of providing a wide variety of services. These include managing household staff, property management, philanthropy coordination, managing family education, intergenera-tional transfer, and legal and tax services, as well as the usual investment services. Phi-lanthropy is of particular interest to many HNWIs, as they donated $229 billion in 2012, an estimated rise of 3.9% compared to the previous year. They also offer an exclusivity factor as they only tend to deal with family members and their related trusts, foundations, charities, non-profit organisa-tions and family-related investment vehi-cles. Stephen Campbell, head of the North America family office group of Citi Private Bank, said: “We have seen an increase in the formation of family offices driven in part by the formation and transfer of wealth along with the desire to control and personalise services offered to family members. Firms who wish to serve this market must offer flexible, cost-effective, high quality services, not unlike those traditionally available to institutional clients.”

However, not all private banks conflict with family offices. Many strike up mutu-

ally beneficial partnerships. Jack Ginter, sen-ior managing director of Abbot Downing, a family office branch of Wells Fargo, feels that their two companies hold an ‘active relationship,’ and ‘strategic advantage’ which allows both to benefit. This allows many private banks to keep clientele while still offering the ‘boutique experience’ that family offices are known for. Heberle took a similar view and considered BNY’s relation-ship to family offices as an ‘extension of the family office, rather than simply an advisor or service provider to it.’

Regulation rears its headOne of the increasingly common demands in private banking, not just in America, but worldwide, was for greater transparency and reporting that was easier to understand. Consequently, more legislation, such as Basel III and the Foreign Account Tax Compli-ance Act (FATCA), was approved to moni-tor banks and to increase their transparency. Stephen Campbell commented on this saying that legislation such as ‘FATCA and recent family office regulations certainly raise the bar’ and forced the wealth sector to ‘adapt to regulatory scrutiny that was generally not present even five years ago.’ He also said that ‘transparent solutions’ were a key draw for clients when it came to Citi Private Bank. Garniewski agreed, stating that clients were more ‘aware’ of all regulatory and compli-ance components and they had to become ever more active to maintain their clients’ confidence in them.

Overall, the private banking situation in the Unites States is secure for the moment, but this may change. With the competition sprouting from emerging markets and the problems encountered, at home and abroad, the sector is on thin ice. While the sheer wealth within the country will help it stay strong, whether it will keep its coveted top spot remains to be seen. <

2011

2008

20092010

-25

-20

-15

-10

-5

0

5

10

15

20

USWorld

2012

%

n Us HNwIs

Growth in HNwI volumes

Source: Timetric

20

09

20

10

20

08

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

USWorld%

20

11

20

12

20

13

20

14

20

15

n Us GROwtH

Nominal GdP per capita growth

Source: Timetric


lIQUIdIty PROFIle: MalONe/GORHaM Private Banker International

Liquidity ProfilesPBI has teamed up with sister company WealthInsight to provide monthly liquidity events that have piqued the interest of WealthInsight’s analysts. This month,Library Media chairman and CEO of Discovery Holding Company, John C. Malone (pictured), and CEO of Hargreaves Lansdown PLC, Ian Gorham

Ian Gorham

Mr. Ian Gorham, chief executive officer and executive director of Hargreaves Lans-down PLC, a UK-based provider of invest-ment management and financial planning services has sold 715,000 shares, represent-ing a 0.151% stake in the company.

Mr Gorham, who joined Hargreaves in September 2009, sold the shares on the 18th November, 2013 at a price of GPB11.79 (US$18.99) per share, for gross

proceeds of approximately GBP8.42 mil-lion (US$13.58 million).

Hargreaves Lansdown plc is a provider of investment management products and services to private investors in the UK.

The company reported revenue of GBP207.9 million during the fiscal year 2011 (FY2011). The company’s revenue grew at a CAGR of 20.45% during 2007–11 with an annual growth of 30.78%. <

John C Malone

Mr John C Malone , cha i rman o f L iber ty Media and chief executive o f f i c e r o f D i scovery Holding Company has sold 351,734 shares , representing 2.4888% stake in Ascent Media Corp. The US-based company operates in the consumer

products sector.The shares were sold at a price of US$93 each for gross proceeds of US$32.71 million. Ascent Capital Group, Inc. is a holding company and owns 100% of its operat ing subsidiary, Monitronics International Inc.

Mr John C Malone

Profile:John C. Malone (Malone) is an American businessman and philanthropist who was born in 1941. Mr Malone is the chairman of Liberty Media and chief executive officer of Discovery Holding Company. As of 1 February 2011, Malone surpassed Ted Turner as the largest individual private landowner in the United States, owning 2,100,000 acres (8,500 km2) of land

Full Name: Mr John C Malone

Known as: John C Malone

year of Birth: 1941

Citizenship: United States

languages: English

liquidity events25th October 2013: Sale of 351,744 shares in Acsent Media Corp for $32.71 million9th august 2013: Sale of 110,298 shares in Liberty Global Inc for

$8.35 million

8th august 2013: Sale of 94,912 shares in Discovery Communications

Inc for $7.12 million

Ian Gorham

Profile:

Born in 1971, Mr Gorham joined Har-greaves in September 2009 as chief oper-ating officer. He previously helped build Deloitte’s financial services operations in 2003 and worked for Grant Thornton International, rising to partner and head of their UK financial services business.Full Name: Mr Ian Gorham

Known as: Ian Gorham

year of Birth: 1971

Citizenship: United Kingdom

languages: English

liquidity event

18th November 2013: Sale of 715,000 shares in Hargreaves Lansdown PLC for $13.58 million


News: MOVeRs aNd sHaKeRsPrivate Banker International

n PeOPle

this month’s senior moves

Country Name Moved from Moved to Old position New position

Asia Pacific Jeffrey Johnson Vanguard Investments Vanguard Investments Senior investment analyst Head, investment strategy and research team

ASEAN Lisa Sun Zurich Insurance Group Mercer n/a Managing director

Australia Craig Mercer Dalton Investments Towers Watson Head, London office Senior hedge fund and alternatives consultant

Australia Bhushan Chiniah n/a Towers Watson n/a Investment analyst

Australia Chris Tran PwC Towers Watson n/a Investment analyst

Australia Justin Greiner ANZ JBWere General manager, wealth transformation CEO

Australia Sean Hollins PwC Towers Watson Manager, investment consulting unit Investment analyst

Australia Sean O’Shea Challenger Financial Services Towers Watson Consultant Investment consultant

Europe David Scammell Schroders Santander Asset Management Head, UK and European interest rate strategies Senior sovereign bond fund manager

Europe John Morton Syndicate Asset Management European Wealth Management Chief executive Executive chairman

Germany Thomas Poppensieker McKinsey & Company Deutsche Bank Head, risk management practice Head, risk control

Middle East Noel O’Leary deVere Acuma Area manager Head, UAE business

Monaco Katie Danby HSBC Private Banking HSBC Private BankingManaging director and head of HSBC Private

Bank (Luxembourg)CEO

New Zealand Patrick O’Rourke Deutsche Bank Deutsche Bank Head of Markets, New Zealand Chief country officer

Switzerland Matthias Inderbitzin Dendro Partners Pioneer Investments n/a Senior sales manager

Switzerland Noël Luchena Credit Suisse Threadneedle Investments Relationship manager Sales director

Turkey Meltem Cagan Morgan Stanley UBS Head, wealth management (Turkey) Country head for Turkey

UK Daniel Lee Cazenove Capital Management Allianz Global Investors Head, UK discretionary sales Sales director

UK Mark Versey Friends Life Aviva Investors CIO Director, client solutions

UK Michael Pagliari Morgan Stanley Smith & Williamson Executive director, multi-asset team Investment management partner

UK Mohamed Yangui Nomura Merrill Lynch Head, equities structuringHead, equity derivatives structuring in Europe,

Africa and the Middle East.

UK Neil MacPherson Turcan Connell Quilter Cheviot Senior investment associate Investment director

UK Simon Aitken Lycetts Insurance Brokers Howden Insurance Brokers Portfolio manager Managing director

USA Andrea McMahon Westwood TrustNelson, Van Denburg & Campbell

Wealth Management GroupVice president Senior vice president

USA Brian Binder InvescoDeutsche Asset & Wealth

ManagementHead, business management Managing director and president

USA Charlie Winn Goldman Sachs Convergent Wealth Advisors Head, private wealth and family office clients Managing director, strategic relationships

USA Chris Moran JP Morgan Schroders National sales manager Head of sub-advisory

USA Doug Noble Wells Fargo Raymond James Financial Financial advisor Financial advisor

USA Elizabeth Connelly Merrill Lynch Krilogy Financial Vice president Senior vice president

USA Greg Bowden Wells Fargo Raymond James Financial Financial advisor Financial advisor

USA Rod Dahl Wells Fargo Raymond James Financial Financial advisor Financial advisor

Source: PBI


COMMeNt: alVaRO sOBRINHO Private Banker International

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PRIVATE BANKER

Fifteen of the world’s 29 fastest growing economies in the world are in... no not Asia, but Africa. Africa today is where the BRICS were a decade ago, signal-

ling huge growth potential. Ten of Africa’s 54 countries have a GDP per capita greater than China, while 17 have a GDP per capita greater than India. This means more consumer power, because even though China has a large econ-omy, its people remain poor. African incomes are rising, bringing prosperity to the middle class. Here the talk is not of recession and unemployment but of managing the changes fuelled by economic growth.

Consensus viewFew would argue that Asia enjoys most atten-tion from investors seeking fast growing economies. But this is a popular view that is obscuring regions with stronger potential. Sub-Saharan Africa is set to grow at around 6 per cent a year, faster than India. Asia, exclud-ing Japan, is projected to grow at 7 per cent, but these rates are regularly revised down.

Africa’s economies are growing because of investment, not because there has been a surge in mineral prices, as happened in the 1970s. We’ve seen foreign investment into Africa increased fivefold since 2000 and 5% last year. Growth includes countries like Ethiopia which do not have significant mineral wealth. Landlocked Rwanda, without natural resources but with a huge population, has been able to sustain a growth rate of 8 per cent thanks to sensible economics. Africa’s states that are resource-rich are now better at manag-ing their wealth: Botswana used its diamond wealth to develop quickly, growing from one of Africa’s poorest countries at independence in 1966 to become a democratic, stable, and upper middle-income country.

Get in earlyInvestors are paid for getting in early. Take Asia, returns there came in the early years. £1000 invested in Asia in 1988 (when the MSCI Asia ex Japan index started) was worth £4016 five years later – equivalent to 27% annualised growth. The same sum invested in 2008 is worth just £1517 today – a more pedestrian 7.5% annualised growth.

The capitalisation of Africa’s stock markets grew from $245 billion in 2002 to more than 1 trillion in 2010 – growth of 22% a year.

According to economist Africa economic expert Paul Collier, returns on investment in Africa are higher than in other regions: the average return on capital for companies was two-thirds higher than that of comparable companies in China, India, Indonesia, and Vietnam. And Africa is attracting investment on its merits. The IMF noted that sub-Saharan Africa’s growth is helped by ‘prudent macro-economic management’, debt-reduction pro-grammes in the developed world that have allowed Africa to be growth orientated; and the use of new communications technolo-gies. And Africa is a youthful continent, with a median age of 20 years compared to 30 in Asia. The number of working age people in Africa will double to 1.1 billion by 2040. With rising costs, Asia is no longer the low-wage factory of the world.

Brain claimThe African diaspora is coming home. Entre-preneurial Africans are returning to establish businesses on the continent. Africa has more cities of over 1 million population than Europe and has more $20,000+ earners than India.

All this is powering consumer facing service sectors, Sectors where growth is not correlated with the rest of the world – a tempting combination.

Agriculture is a key sector for growth in Africa. It has 60 per cent of the world’s uncul-tivated arable land. Food dis-tribution is improving efficient as transport infrastructure develops and agricultural poli-cies improve. The agriculture sector can diversify into pro-

cessing. Africa is a big exporter of raw agricul-tural products.

It’s true that Africa still has too many bar-riers to enterprise. A young businessman in Swaziland has to wait 56 days to register his company. A small business in Niger takes a year to find a warehouse. But as these brakes on progress are addressed, growth will pick up. Angola has brought in laws supporting small businesses, creating ‘one-stop-shops’ across Angola to offer advice and support and, crucially, access to credit. But global investors need to refresh their views of Africa.

The perception of the continent lags reality, as investors extrapolate past success in other regions. With such an information disconnect, value is on the table for investors.

alvaro sobrinho, chairman, Banco Valor

Africa snapping at Asia’s heels

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