HSBC Republic tailors its services and products for individual people in very different - and often difficult - parts of the world.

Founded as a banking house on sound "Scottish banking principles" in Hong Kong and Shanghai in 1865, HSBC is no stranger to looking after wealthy individuals and their finances.

Yet despite the emotive 19th century link with Scotland, and its reputation for canny money management, it was not until 1992 that the Hong Kong and Shanghai Banking Corporation (HSBC), as it had become, finally moved centre stage with the purchase of Midland Bank.

Even then, it was another eight years, and the eve of a new century, before HSBC formally emerged as a global player with a clear identity in the high net worth market through the purchase of Edmond Safra's private Republic banking and investment empire in 1999 (see box).

HSBC Republic likes to bill itself as "a private bank on a international scale". Alongside the obvious traditional banking services of mortgages, credit cards and current accounts, clients are offered access to specialist teams which cover structured investment products (much in demand at present), diamonds and jewellery, real estate, family advisory matters and global media.

"The big industrialists in global private banking are undoubtedly UBS and Credit Suisse," says Bannister. "Just below them is a cluster which includes HSBC Republic, Deutsche Bank, Citigroup and Morgan Chase. Then there are the traditional European houses such as Pictet and Julius Baer Group.

"We are unique among our competitors in that 65% of the investment products we sell are from outside the HSBC range."

For an organisation viewed from the outside as being ruled by a rod of HSBC iron right the way through, executives, and, indeed, their line managers at the client end of the business in HSBC Republic, have a surprising degree of latitude. Even the old names in Europe survive, such as HSBC Guyerzeller and HSBC Trinkhaus and Burkhardt.
Bannister says: "Of course we have certain group principles. These would include honesty, integrity, transparency and giving clients a service first and selling them a product second. They are all non-negotiable as is our conservative approach to banking in general."

As an example of that conservatism, he points to the fact that only 10% of the total funds under management are invested in hedge funds despite the fact that they are all the rage at the moment. Even so, there is clearly a demand and HSBC Republic does offer a stable of hedge funds run under the Hermitage banner.

Given that Republic was driven into HSBC's arms after losing money in Russia only a few years ago, it is ironic that HSBC's Russian Hermitage hedge fund is now one of the sector's star performers.

"We are enormously conservative with our clients' money," says Bannister.

"Within private banking, we have, if you like, many dining rooms serving all manner of regional dishes but there is only one kitchen. What we haven't got within Republic, we can find through the group's resources in any part of the world."

"We have autonomy because I, sitting here in London, couldn't possibly look after assets or clients in Latin America with the same depth and knowledge as Manuel Diaz does, or in Hong Kong where Monica Wong runs a flawless business.
"Services, like products, or investments, are tailored for individual people in very different and often difficult parts of the world. Yes, all clients want to enhance the yield on their wealth or protect it on the downside. But the best results are only achieved by recognising local differences, customs and practices."

Diaz, chief executive officer of the HSBC republic office in Miami, worked for Safra for 25 years. What the HSBC link has done, he believes, is give "depth" to the range of services he can offer. "We cannot afford to keep experts on the premises to cover every aspect of financial management, " he says. "We can, though, call on the resources of HSBC worldwide at any time. That has undoubtedly helped us.

"There are a lot of wealthy Latin Americans and this is a very interesting time. The older generation, for example, are very conservative and we have helped them build their businesses and manage their money for a long time. While hedge funds might be heavily in demand elsewhere, not 1% of the assets we manage are invested in them," explains Diaz, who was born in Cuba.

He also points out that local knowledge is essential in detecting possible money laundering in Latin America. "We look after around $5bn on behalf of 2,500 clients and we know them all personally through our local compliance officers. We are extremely, extremely cautious. If we have doubts, we close the account. We couldn't take on a politician, or a politically exposed person, for example, or someone in the military unless we had express permission in writing from group headquarters.

"We have grown up alongside the older generation of our clients in Latin America and in that time we have purchased houses in America for them. We develop real estate portfolios and we find college places for their children, if asked, and even accommodation and a car."

There is however, a noticeable shift in the needs of his Latin American client base, says Diaz. "We are doing a lot more onshore work with our clients who are taking up American residency or citizenship and moving their assets out of their countries and on to the US mainland. In many instances, they have sold their family businesses. Some of the younger clients who, unlike their parents, were educated in America, are a little more aggressive with their money, or rather should I say their parents' money?"

The shift of private wealth management from so-called offshore status to onshore is not confined to Latin America, according to Bannister. "This is a fundamental change that is occurring right the way across the world. Offshore is becoming the past. Nowadays it's about onshore banking, with transparency and tax planning coming to the fore. That is the reason we recently acquired Wealth Tax Advisory Service, a tax specialist firm, from the old Arthur Andersen, employing 230 people.

"Building suitable trusts for clients, for instance, can take six to nine months. Private wealth management is about preserving assets for future generations while at the same time trying to increase value. To do that effectively, you need to start with the liquid assets. Then look at structured products. After that, it is about enhancing the yield and discretionary fund management. But to make wealth management really work, you have to have a proper tax structure within which to operate."

While high net worth individuals in Europe and the Americas may be more prepared to leave the minutiae of investment management to the discretion of the bank, the same cannot be said for the Asia Pacific region, according to Monica Wong. "Here, most of our clients want to be actively involved in the investment management of their portfolio," she says. "That is the main difference in private banking between Asia and Europe, I think. That, and the fact that Hong Kong is a low-tax jurisdiction.

"In many ways, the HSBC Republic title in Hong Kong merely formalises a private client banking service that has existed since 1865. There were troubled times in the region then as now: Indonesia, Thailand and Brunei, for example. "Our clients, like anyone else, want to protect their wealth with secure products that will make them money," says Wong. "Political or fiscal problems in a particular country do help to concentrate minds."

Investment products to protect assets have never been more in demand, says Gerard Aquilina, head of HSBC republic (Americas) in New York, who recently joined from Merrill Lynch. "We are seeing a huge flight to quality and the big names in wealth management. There is a re-evaluation and a re-balancing of portfolios. True, the stock market falls have wiped out significant chunks of wealth. But there have also been unfortunate systemic problems with corporate and accounting scandals.

"Our main call at the moment is for structured products, from the original time-term deposit accounts, to ones where the capital sum is protected on the downside and there is a coupon linked to US Treasury bills on the upside. They are popular because investors the world over know where they stand and the risk-to-reward ratio could not be clearer."
Aquilina adds: "To give you an idea of how conservative we are, of the $20bn under management in the US, 85% has been in cash or structured cash instruments for the past five years."

Peter Braunwalder, chief executive of HSBC Republic (Switzerland) at the Geneva headquarters, agrees with Aquilina's flight to quality assessment in wealth management. "The product-only driven houses are dead. No one talks anymore about the big US investment banks that had private banking arms. Like Gerard says, our clients are global citizens these days with interests in many different jurisdictions.

"They also need someone with whom to talk about their own particular affairs and what they should be doing in order to best protect their capital. In Europe, we do obviously advise on real estate but it tends to be in the commercial context. Typically, our clients already own their own homes, have a weekend place and often have another property as an investment and to generate some rental income."

The necessity of having a private bank with serious financial muscle was underlined in dramatic fashion just recently at HSBC Republic. In November, former bank director Stephen Troth was sentenced to four-and-a-half-years in prison in Monaco for defrauding bank clients of £12m.

Among the victims who helped fund Troth's lavish lifestyle of fast cars and sumptuous villas were motor racing's Formula One World champion Michael Schumacher, who was hit for £6.6m, tennis star Henri Laconte and French singer Liane Foly.
"Integrity is absolutely vital in our business," says Bannister. "Our own internal audit process threw up the anomalies in the Troth affair and we immediately contacted the Monaco police who acted swiftly. There was no cover-up, and we made immediate and full restitution as and where necessary."

In researching this article, a number of big European and US investment bank analysts were asked to comment on private banking and wealth management in general and HSBC Republic in particular. They all declined. Some cited possible conflicts of interest because their banks could be seen as competitors. Others, however, were reluctant to make any public comment at all, such is the climate of fear among the analyst community while financial watchdogs in the US and UK probe the "independence" of their research.
One who did go on the record, though, was scathing about what many promoted as a premier private banking and wealth management service. Alex Scott, senior research analyst at investment manager Seven Investment Management, argues: "A good number of so-called private banks are simply offering generally available mass market services with a few extra frills tacked on such as leather-bound cheque book covers and a few in-house investment products. They are basically fee-and commission-driven and, more often than not, local as opposed to global services."

Scott says the personal service aspect of these banks is "severely lacking." He adds: "In terms of the respected players in personal banking and wealth management, you are looking at ones with generations of experience in one guise or another such as UBS, HSBC Republic and Citigroup. Their type of service is geared to discretion and wealth preservation spanning the whole family and using tax planning over generations rather than the short term."
Many of the newer private banking and wealth management arms of the giant bulge-bracket investment houses are pulling out of the market now that the good times are over. HSBC, however is likely to keep the faith with Republic, not least because it will make a $400m contribution to group profits this year.

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