With the shift of global wealth eastward to the fast-growing big economies, local banks are launching dedicated private-wealth operations while the large international banks are expanding their wealth-management operations to the Middle East and Asia.
Wealth managers see rich pickings across region
A large bank safe is the centrepiece of an advertising campaign by Abu Dhabi Islamic Bank's private banking arm. The copy of the advertisement reads: "ADIB will safeguard your wealth and provide confidentiality." At first glance the ad looks like a swipe at the Swiss banks that have been plagued by confidentiality issues and massive fund outflows.
The increase in the number of disgruntled clients seeking a new home for their money is only one reason why private banks are expanding in the region. With the shift of global wealth eastward to the fast-growing big economies, local banks are launching dedicated private-wealth operations while the large international banks are expanding their wealth-management operations to the Middle East and Asia.
As opportunities emerge for investors in countries such as India and China, the centre of gravity for growth in the industry is moving from New York and London to Mumbai, Hong Kong and Abu Dhabi. "There is clearly a trend of investing further eastward as the asset allocation follows economic growth," says Nigel Putt, the head of private banking, Middle East, for Lloyds International, part of Lloyds Banking Group. "Our presence in this market since 1977 gives us a visible commitment to benefit from that."
Merrill Lynch and Capgemini in their latest wealth report forecast that the Asia-Pacific region would overtake North America as home to the largest concentration of wealthy people in the world by 2013. That move is already well under way. At the end of 2008, China had more dollar millionaires than the UK: 364,000 compared with 362,000 And private bankers are following the money. In recent weeks, JPMorgan relocated its head of private banking from New York to Hong Kong, while HSBC is expected to do so shortly.
Smaller private banks and newcomers have been able to attract some of the wealthy who were disillusioned with their investments as the financial crisis revealed banks' exposure to toxic derivatives, as well as shortcomings of regulators and the global financial system. This includes so-called high-net-worth individuals from the Gulf who did their banking while vacationing on Lake Geneva. "You can clearly see a trend of large western banks shifting their staff to this region. It is quite obvious why: they can create more added value here," says Alexander von Pock, a partner at AT Kearney, the consultancy.
The financial crisis was costly for the region's wealthy. In 2008, assets of the Gulf's wealthiest fell by 16 per cent, Merrill Lynch and Capgemini estimated. And many of the rich are reducing borrowing and risk following the experiences of the past two years. That can be good for private bankers. "Even if the total value of wealth held in private hands continues to decline in 2010, that does not mean that the total value of assets in private banks continues to fall," says Mr Putt. "To the contrary: business sales may increase cash assets, which they may place with private banks."
In addition, the rich are becoming more sophisticated and seeking more comprehensive investment advice, ranging from bread-and-butter portfolio management to tax advice, access to capital markets and succession planning. Take Bank Sarasin-Alpen, a joint venture between the small Basel-based private bank and the UAE investment bank Alpen Capital. In November, the private bank, which has about 30 people in the Middle East, launched a full range of Islamic private banking products, which includes Sharia-compliant estate and succession planning.
While Switzerland remains the world's number one offshore wealth manager and it may be some time before a dedicated local private bank emerges, the long-term outlook is positive. "Prospects are good, despite the dip we have seen," says Mr von Pock. @Email:email@example.com