An analysis by the research firm Insight Discovery on private banking in the GCC draws a picture of a highly competitive business, where costs are rising and not always covered, and where customers are increasingly discerning and demanding.
Private banking requires more than a Savile Row suit and a posh accent
I used to think that private banking was the financial services equivalent of shooting fish in a barrel.
All you had to do was acquire a wardrobe full of Savile Row suits and open up some posh offices; sit back with your hand-made Loakes on the desk and wait for the business to walk in through the door.
In the UAE, it seemed to me particularly easy. What potential local client wouldn’t want to hand over their petro dollars once they have seen that business card with a royal crest on it, or heard that impeccable English accent, perhaps with just a hint of Geneva?
Well, it turns out it’s not quite as simple as that, especially in this region, as a forthcoming analysis by research firm Insight Discovery shows.
Their report, Revealed – the mysterious world of private banking in the GCC, draws a picture of a highly competitive business, where costs are rising and not always covered, and where customers are increasingly discerning and demanding.
Analysis of the sector has been hampered in the past by one simple fact. One of the attractions of private banking has been precisely that it is private. Clients want discretion and privacy. The banks fall over themselves to offer them anonymity and secrecy.
It’s hard to get an overall picture in these circumstances.
But the new report cuts though some of the opacity. It reveals that 61 private banks operate in the region, with nearly half of them based in Dubai. In this respect, the emirate has truly become the Switzerland of the Middle East, as the regional hub for the private banking operations of the big international banks.
The rest are the private banking arms of local or regional financial institutions.
Many of these are registered in the Dubai International Financial Centre, and therefore subject to the Dubai Financial Services Authority rules that require them to disclose local accounts.
But even if they did agree to disclose their figures under DFSA regulations, it’s unlikely you would get a very accurate picture of their financial health.
The portfolios of wealthy locals are usually held outside the region, with the business being booked through offshore jurisdictions like Geneva, Singapore and Jersey. This is usually what customers want.
The range of assets under management by these institutions is considerable. Most executives book business of between US$30 million and $120m, but one lucky (unnamed but American-based) individual is responsible for around $10 billion of wealth.
Who are the customers?
The terminology of the business identifies “high net worth individuals” – let’s call them rich people – as anybody with more than $1m of investible assets, and research shows that the Middle East in 2012 was home to 500,000 such people, out of 12 million globally.
Both the number and the assets of rich people in the Middle East is growing, at around 8 per cent last year, faster than the global average and faster than the economies of their home countries. This is why the private bankers are here.
Unlike rich people in America, Europe or Asia, those in the Middle East are more likely to avoid equity investment, and go for a range of opportunities including cash-on-deposit, property, and other alternative investments such as commodities.
This is why the bankers have such a tough job. Keeping up with the demands of a sophisticated client who is fully aware of the spread of assets available, and demands a better return than equities, is much harder than just buying blue-chips in established markets. Regional clients want to see their wealth grow, rather than simply preserved.
Servicing this choosy market and requires a relatively big number of executives on the ground, and adds to the cost burden for the private banks.
Some have as many as 50 executives in the region. In addition to the big remuneration packages and high office costs, that makes for a hefty invoice from Savile Row.
So, not surprisingly, some have withdrawn from the business in recent years. Lloyds, Merrill Lynch and Morgan Stanley have all sold out of private banking in the region.
Nonetheless, the glittering prizes on offer mean that others will still try, especially if they feel they have identified an underexploited niche. Nedbank Private Wealth and Arbuthnot Latham are two recent new entrants.
But the newcomers will have to work harder in an increasingly tough environment. It is no longer just shooting fish in a barrel.