HSBC is sharpening its focus on the Swiss private banking market
Clients love the sophisticated arsenal of financial products offered, discovers SIOW LI SEN.

War or no war, Sars or no Sars, the rich are often better insulated. And this is good news for private bankers. According to Roman Scott of the Boston Consulting Group (BCG), Asia-Pacific continues to be the world's fastest-growing market for private banks, which are set for another 'cracking, brilliant year'. And retrenchment is the farthest thing from their minds.

Monica Wong, HSBC Republic's private banking chief executive for Asia, said her organisation is constantly on the prowl for talented people, despite having more than 1,000 staff in the region. Little wonder, looking at the bottomline contribution the business brings to the group. HSBC Republic is the private banking flagship of financial giant HSBC group.

HSBC Republic's business in Asia-Pacific recorded solid 22 per cent growth in pre-tax profit in 2002 and its contribution to group private banking was almost one-third for the year. Assets under management at end-2002 amounted to US$45 billion, up 11 per cent from 2001.

Also pleased with the private banking business is Didier von Daeniken, branch manager of Credit Suisse: 'From a business point of view, the war in Iraq and Sars has had no impact on our performance in Q1,' he says, noting that revenue in Q1 showed double-digit growth. 'We are certainly on track despite aggressive targets,' he adds.

The expanding business has even become a bit of a nice-to-have problem, as those on the ground have to justify to their bosses in Switzerland the need to hire more people.
Says Thomas John, director and regional head of portfolio management at Credit Suisse: 'It's hard to persuade them we need more when they are retrenching.'

Daniel Truchi, chief executive of SG Private Banking Asia Pacific, says his unit's assets and income increased about 20 per cent last year, while operating income grew 50 per cent.

This pace has kept up into 2003, with asset growth of 20 per cent and income growth of more than 40 per cent in Q1, compared with the preceding quarter.

Strangely, the trend in Asia-Pacific runs counter to that worldwide. As clients shift back into cash, many global private banks that service the very rich are going through their worst times, axing staff and slashing bonuses for those still on the payroll. According to BCG, which began surveying global wealth since 2001, last year was the worst year in history for the private banks. 'It was a disaster,' says Mr Scott.

For instance, the Credit Suisse Group, Switzerland's second-largest bank, announced plans in February to cut 1,250 jobs - mostly in the home market - after reporting the biggest-ever loss for a European bank last year. Since Asian tycoons have also lost big in the current bear market, why the bonanza for private banks in the region?

One simple reason, according to Mr Scott, is that many do-it-yourself, high-net-worth Asians are turning to professionals to manage their wealth after having been hit by the Perfect Storm. That's the triple whammy of near-zero interest earned on savings, deflating property prices and losses on equities.

Private banks in Asia-Pacific are likely to report another year of good growth in 2002, going by initial findings of this year's survey by BCG. They are likely to see profits grow 15 per cent and assets under management expand just under 20 per cent.

This will repeat the performance of 2001, when private banks in Asia-Pacific saw profit growth of 15 per cent, against falls of 69 per cent in the US and 34 per cent in Europe, according to BCG's data.

The region accounted for an estimated 25 per cent of global private wealth in 2001, or roughly US$10.5 trillion, says BCG. According to Pictet Asia's managing director, Jean-Claude Erne: 'No doubt the Asian financial crisis and the recent bear market have destroyed a lot of wealth. That being said, in the golden years (from the early 1990s to 1997), making excellent returns on both domestic and international markets was quite easy and the added value of a private banker at that time seemed questionable.

'But with the Asian crisis, people in Asia learned the hard way that the sky may not always be the limit, and that the basic principles of strategic asset allocation and diversification finally make a lot of sense. This is even more true in today's bear market environment.' Five or six years ago, notes Mr Scott, the typical Asian high-net-worth individual was a Chinese businessman who might own an engineering company. He would have amassed about S$5 million of liquid assets plus several properties.

Of the S$5 million, S$3 million would likely be in plain vanilla savings-type accounts, S$1 million set aside for yet another property investment and S$1 million for punting in the local stock market.

'The perfect storm has hit, all have collapsed and maybe he wakes up and realises it's time for the professionals who have the structured products to look after him in tough times,' says Mr Scott.

Private bankers say that while growth in Asia-Pacific is fuelled by several factors, the key is the sophisticated arsenal of financial products they offer.

Says a Singaporean businessman who has been a client of Citigroup private bank: 'I don't think I could have done better on my own. I find their role in just filtering all the information on these products - derivatives, floor, caps and ceiling, funds of hedge funds - useful.'

Private banking in Asia-Pacific is also a relatively new phenomenon, and represents richer pickings for bankers than their mature home markets.

Paul Davies, head of private banking (Asia-Pacific) and general manager of Coutts in Singapore, says private banking in the more mature countries of Europe has been hit by the changes in tax regimes and greater exchange of information between tax authorities.

The private banking industry in Europe grew fat on helping the rich park their wealth out of the reach of the taxman, given the high tax rates. 'In Asia, wealth is generated through entrepreneurial activity,' he says.

So while the Asian entrepreneur has lost money on his investments, he is much more resilient, Mr Davies believes. This is unlike the 'old money' in Europe, where the preoccupation is preserving the loot made by previous generations.

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