Private banks gird for Asia onshore push

14 Oct, 2007

Global private banks, used to serving Asia's wealthy from Hong Kong and Singapore, are increasingly jumping directly into the region's local markets, betting that tougher restrictions there will be offset by a bounty of new millionaire clients.
Capital controls and limits on what products they can offer are just some of the constraints these international players are prepared to accept as they enter new markets like China, India, Japan and South Korea.
Banks are looking to drum up business from newly-minted wealthy in those countries who are unfamiliar with or reluctant to deal with foreign banks in more liberal offshore financial centres like Hong Kong or Dubai.
This will mark a challenge for institutions used to the offshore model pioneered by Switzerland and adopted with relish by Singapore - where tough bank secrecy laws are paramount to attracting investors' money from all over the world and bankers are free to offer a wider range of products.
"The biggest problem is because your hands are tied it makes you, as a big international real private bank, look like your domestic competitors," said Roman Scott, managing director of Calamander Group and a consultant to the private banking industry in Asia for the past decade.
"If you truly allowed them to go into the market with the full range of what they are capable doing ... they would just kill the domestic competition." Private banks' hunger to tap Asian markets directly was highlighted this week when Wall Street giant Morgan Stanley told the Reuters Wealth Management Summit it would make a major drive into India next year, hiring 100 private bankers in a bid to manage $1 billion in assets by the end of 2010.
The head of Asia-Pacific private banking for Credit Suisse told the event it was preparing to enter Japan's private banking market next year. BNP Paribas, France's biggest bank, said it is doubling its team in China next year and looking to make a 30 percent boost to staff in India and Taiwan.
"Our approach is to be onshore in all the key markets in this region," said Michel Longhini, head of BNP Paribas private banking Asia-Pacific. "We expect in the coming three years we would start to have the same type of flows in both onshore and offshore markets."
The allure of Asia's domestic markets lies in their high growth and massive potential. The number of wealthy individuals in Asia - people with more than $1 million in financial assets excluding their homes - grew 8.6 percent to 2.6 million in 2006, according to a report by Merrill Lynch and consultants Capgemini.
Asia's wealthy saw the value of their assets rise 10.5 percent last year to $8.4 trillion, topping a growth rate of 10.3 percent in North America and 7.8 percent in Europe. By comparison, Scott estimated the private banking industry in Hong Kong and Singapore manages a combined $600 billion.
"The wealth creation is happening in the domestic market," said Marcel Kreis, Credit Suisse's head of private banking for Asia-Pacific, who added that China and Japan were the region's most compelling, and challenging, markets.
Past forays into restrictive Asian markets have proven difficult. Three years ago, Japan's Financial Services Agency ordered Citigroup to close its private banking operation because of a series of rules violations, a reflection of the regulatory scrutiny players face in the market.
International firms must also fight to win market share from deeply entrenched Japanese financial institutions. In mainland China, challenges include limited product offerings and the country's tightly controlled capital account, as well as a lack of local expertise and distribution.
In many Asian markets, uncertainly still surrounds exactly which products and services global private banks can and cannot offer. "Regulations are not necessarily clear, and client confidentiality, privacy, anti-money laundering procedures and ownership rules are not clearly defined," said Justin Ong, a partner at PricewaterhouseCoopers in Singapore.
"This can cause problems if banks are simply bringing an offshore servicing mentality to the onshore marketplace. People and products are also areas of concern - hiring the right talent who have the requisite knowledge ... is extremely challenging."
Given those challenges, some firms such as J.P. Morgan Private Bank and Switzerland's Bank Sarasin & Co told the Reuters Summit that they are content to remain focused for the time being on Singapore and Hong Kong.
But many private banks will find the potential opportunities too tempting to ignore. "If I was a major private bank, I would be spending all of my time thinking about going onshore in India and China," said Calamander's Scott. "It's going to be frustrating for the next three or four years ... but you're building the future. Those who don't build that now will be left behind. In 10 year's time, that's where the market is going to be."

Read Comments