Jean-Luc Freymond, CEO of SAGE, was a member of the panel discussion of a Breakfast Briefing in Geneva last 8th February 2012; stressing on the importance of banking technology that will attract Asian bankers. JL Freymond explained that UHNWI in Asia, in general, are technologically savvy and are looking for systems that can offer them sophisticated products and provide them quick and efficient access to markets. He added that Swiss banks have to offer these new products in the face of Asian competition. He also discussed the need for Swiss bankers to have more of an entrepreneurial spirit to compete with the Asian banks.
Below is a summary of the discussion taken from an article by Sébastien Ruche of L’AGEFI:
BEYOND THE STUBBORN MYTHS ABOUT ASIA
PRVATE BANKING: Swiss banks must combine the threat of Asian competition and the attraction of the local market.
How can Swiss private banks counter the Asian threat? The conference organized yesterday in Geneva by WealthBriefing and Sage had enough interest in a financial place in deep reflection on its business model. But it had less questions about threats than opportunities. The Asian market has to be made part of the strategy of any Swiss institution – but not based on myths.
The next threat, Hong Kong and Singapore, which have 11% of the world’s offshore wealth, remains well behind Switzerland, which maintains its global leadership with a market share of 27% despite international pressure, reports Ian Woodhouse of PwC. Furthermore, Asian banks are not interested in European or Latin-American clients, says Antoine Bordelais, of Capital Private Wealth. “Their competition is growing in the Middle East, particularly for reasons of geographical closeness, and especially on their domestic markets, where they show very aggressively throughout the range of products, knowledge of the client, local presence and synergies with corporate banking--a key element for entrepreneurial clients.”
The next opportunities, when approaching Asia, is to first dispel some myths, continues Michel Longhini, head of private banking at UBP. Asia is no longer an untouched market, but it is strongly covered by financial intermediaries, with two stable leaders – UBS and Credit Suisse. The creation of wealth and fortunes that remains in its place is nothing new – this has been a continuing theme for a good ten years.
Also, concerning profitability, myths are stubborn. “Private banking projects in Asia have a much lower profitability level in return on equity, compared to a Swiss bank, with a difference of about 15% to 20%.” This calls into question the credibility of numerous projects that focus solely on private management.
“An Asian presence can make sense for offering an alternative booking center, or if it can rely on corporate banking, but other than these cases, the reality of the benefits is not so bright,” Michel Longhini further estimates, according to whom many Asian facilities cannot stand without also engaging in non-Asian business.
At the same time, reminds the head of UBP, the risk level is very high in Asia. Worse still, it is very difficult to estimate for a bank, between the use of heavy leveraging by clients and the sophisticated products that they use. This explains the heavy losses sustained by private banking in Asia during the 2008 crisis.
Another persistent myth surrounding private management in Asia is that the local regulator will be more tolerant. False. The screw has been tightened considerably in recent times, requiring that a sale not be made until there is a plan of fiscal suitability for the client—that is to say, the relevance of a product for a client. The result is that “in Hong Kong, it takes 40 to 45 minutes to sell a product that is explained in ten minutes in Europe.” These “suitability” requirements increase the cost of training staff based in Asia. This is a point that can eliminate another misconception: Asia has talent in private banking.
On the positive side, a significant part of the potential Asian clientele consists of members of the second or third generation, who are more sophisticated and more sensitized to the preservation of capital: One point on which Swiss institutions can capitalize, according to Michel Longhini. Any player in private management must have an Asian strategy, possibly starting in Switzerland, since 20% to 25% of the business of high net worth Asian individuals is booked in Europe, concludes the head of private banking at UBP. “Rather than approaching an Asian expansion with a defensive stance, we should include it in a global strategy, taking into account the fact that profitability is lower in Asia and the risks are greater. But for now, the “homework” has not been done!”