Private Banking & Wealth Management2009 Top 10 for Brokerage & Wealth Management: Business Drivers, Strategic Responses, IT Priorities Single-Family Office: The Ultra-High-Net-Worth Wealth Management Laboratory and concepts for Japan


Risk and Reward Dec. 21 Commentary Hitting the bottom line

The secondary shockwave of the global credit crunch is now about to hit the private banking sector. Based on our analysis of the business models in private banking the dips in cost-income ratios in 2008-2009 will truly hit the bottom line for many in 2010. Many banks have seen a 25 per cent rise or more in their cost-income ratios with little correction. Put simply, the cost of running the wealth management business will look unattractive to many group boards and although many economies now appear to be on the rebound, ability to repair the significant drop in asset levels will take more time that many stakeholders have the patience for. This is not to state that all the private banking and wealth management businesses are about to hit the wall (although some will). However, many will still not be generating the return on investment that banking groups will be needing. Some of these will be folded into the retail wealth arms (this is already happening in the US and makes good business sense) but others will hold out, believing that launching a new ultra high net worth solution is the answer. Arguably, it is all about market timing. The savvy group stakeholders will consider they can sell a positive story to the market if they tidy up their wealth businesses and show a marginal uptick in AuM or, better still, profits which may cover over some of the more systemic issues the business models are facing. We expect the cadence of disposals both large and small to increase next year. The business models likely to be most impacted in terms of sales are both the multi-regional private banking businesses and the very boutique onshore private client asset management solutions. The former are proving to many executives that there are too many moving parts to manage efficiently, while the latter will have been unable to attract a critical mass of assets to sustain their cost base. A final reason for the further decline in multiples for the private banking business is the deepening insight into the validity of the segmentation assumptions of the banks on the block. Increasing insight into the bank’s commercial traction with clients, at a revenue level based on improving management information systems and comparables with other segments of the financial community, are increasingly showing the higher segments of the wealth management arena (the eight figure market and above) are much less commercially attractive in terms of margin or scale.

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