The cliché of private banking is that it takes place in such rarefied locations such as the Bahnhofstrasse in Geneva and in shielded villas with simultaneous vistas of Lac Leman and the Matterhorn. Private banking exudes images of fauteuils deeper than a Faraya snowdrift, secret code words, and après-banking parties that are as lascivious as they are discreet.
Technically however, private banking is management of finances to the client’s best advantage in exchange for fixed and performance-based fees. Some banks for this reason call their private banking operations by different names, such as wealth management center. As such, private banking has a primary entry barrier determined by disposable wealth.
This barrier is not defined strictly. Some banks capitalize on the appeal of private banking when marketing individual products with a participation requirement of just $10,000. More common, however, is a classification under which one can access the base camp of a private banking expedition when putting up assets of $500,000 to $1 million. The more serious participant will make above $1 million available, and the real high-net-worth client will justify the attention of his private banker by having him deal with more than $5 million, entrusted for the sake of safety and multiplication.
The activity is for several reasons an intriguing proposition to banks and financial institutions. For starters, the wealthy are getting more numerous, and data from some countries showed 8 to 10 % increases in both the numbers of high-net-worth clients and the assets under management by wealthy people just for this year to date. This alone has generated significant organic business growth for private banking.
Secondly, fee-based income is simply more profitable and less hassle for the bank than chasing after those pedestrian customers, and thirdly, it is off-balance sheet – which looks especially desirable as the implementation deadlines for allocation of risk-based capital under Basel II rules are getting closer and closer.
While private banking has long been a Swiss domain (the Alpine republic is still a center of the activity and is currently witnessing a consolidation in this particular industry) more and more banks all around are honing their capabilities to provide specialized services to high-net-worth individuals and their families.
Lebanese banks are very much in tune with this trend, as profiles in private banking here are gaining in visibility and numbers. The local bank with outright specialization and singular focus on private banking since last year is Audi Saradar Private Bank (ASPB), formed through the merger/acquisition between Banque Audi Group and Banque Saradar.
Under the umbrella of the Audi Saradar Group, ASPB has become the country’s, and presumably the region’s, sole bank dedicated exclusively to private banking, ASPB’s assistant general manager, Toufic Aouad, told Executive. The new entity had “a very positive reception”, he said, because it could benefit from being part of the much larger Audi Saradar Group but is not a new brand in the sense that ASPB could build on experience of Banque Saradar’s business with its historic focus on private clients and investments for private clients.
On paper, the 2004 results of ASPB came out slightly diminished in the record keeping of the Bilanbanques publication, but this occurred according to Aouad only because in process of integrating Banque Saradar’s activities into the group, the bank’s retail business was extracted from ASPB and transferred to Banque Audi. ASPB, whose numbers are consolidated into the annual figures for Audi Saradar Group, maintained its base of 4,000 private clients, which is leaving much room for growth in local and regional markets, Aouad said.
There are numerous practical recipes for expansion of wealth management business. BEMO Bank, another niche player known for its private banking engagement, has just opened a new branch in the affluent Beirut quarter of Verdun. Introducing this branch as upscale locale catering to discerning customers, BEMO is actually not the only bank whose plans entail a new high-end outlet for private clients in the Verdun neighborhood.
Foreign private banks do generally not operate in Lebanon under full-scale licenses for banking activities. The fully licensed local outlets of global giants HSBC and BNPI (the Lebanese subsidiary of BNP Paribas) are targeting the private banking market as one of their main objectives in Lebanon.
A by comparison more recent entrant to the country, Standard Chartered, has strong wealth management operations in the Gulf region but is only now exploring to develop this line here, the bank’s head of retail banking in Lebanon, Anthony Ussher, told Executive. “One great thing with private banking is that you don’t need many customers,” he said.
Among local banks, one significant player to presently increase its involvement is Bank of Beirut (BoB). “To Bank of Beirut, private banking is important and we have serious plans to develop this,” said Michel Chikhani, head of asset management at Bank of Beirut. As the bank’s client base has grown to a much more regional composition, their demands on the bank are those of a global bank and “private banking is a service we need to perform as being requested from our clients,” he said.
The rollout strategy for this activity is very gradual and the structure of its private banking department is yet to be finalized. In an environment where many buyers view investment products often only under the perspective of yield, BoB wants to ascertain that the complex wealth management that the bank is planning to offer fits seamlessly into its corporate philosophy.
In describing the bank’s private banking concept as different from asset management, private banking has a very wide scope, Chikhani said. “When we go into a more complex product, we go into a context of return and a concept of risk in a long-term relationship. We believe that the satisfaction of the client should not be superficial and we provide him with full knowledge of the product.”
One of the country’s fastest growing banks over recent years was Lebanese Canadian Bank With growth of 35.6% in total assets between 2003 and 2004, the Alpha Group bank has gained “a position of prominence in the bracket of banks with credibility, financial strength and proper management. It is at this stage very important for us to diversify our asset base, client base, and profit centers. We are now in the implementation stage of private banking and have big ambition for a real private banking culture, which is talked about but not realized by some others,” said Bassam Zok, newly in charge of the private banking department at Lebanese Canadian Bank.
Targeting primarily clients with assets between $500,000 and $1 million, the private banking operation of Lebanese Canadian should be rolling at speed within two years and account for about 5% of the bank’s assets, said Zok, who joined the institution with many years of experience at major finance houses serving Middle Eastern clients from London.
In addressing the high-net-worth market in the Middle East, Lebanese Canadian would have an advantage of being free of alliances with large global banks. “We are not conflicted with vested interests. We also have big ambitions but are modest in our approach and want to establish a culture where the client feels that he puts his money where he is pampered,” Zok enthused.
High-net-worth clients have clearly plentiful options abroad and at home among to choose with whom to entrust their wealth. The growing number of banks signaling that they can provide the rich with elite services makes it then ever more important that client acquisition and care are in perfect working order, especially since the banker’s role in the customer’s dealings is so much more involved. Moreover, these clients can be fickle.
“The extent of confidence of a private banker’s knowledge is a quantum level higher than in a retail banking relationship. He becomes part of the individual’s life, almost like a priest. A total service, that’s what is demanded of a private banker,” said Ussher.
In this relationship banking, the involvement can easily extend to giving advice on legal affairs, helping with education decisions in the family, make choices in running a company, said Chikhani, “Private banking satisfies the whims of investors.”
“They [private banking clients] like to be made happy and are used to having things their own way. They can be difficult to please, demanding, intelligent people,” said Ussher, which increases the requirements on the banker.
“The edge is in the affinity with the client, but it is not enough to get the business. Any success will be combining different elements,” said Aouad. In his view, the factors that can swing the client’s banking decision involve a combination of the bank’s reputation, the banker’s personality, product and service offerings, and preferential treatment, of which no single one is decisive over the others.
But with minimal variations, the bankers agreed that bank and individual personality play decisive roles in creating a good private banking bond, mostly more so than the range of investment products of the day. And in all cases the competence factors figure immeasurably more important than lavishly wining and dining the client, they said.
Mercantile clients often appreciate a bank’s gestures of grandeur in their encounters and banks indeed do apply the ‘red-carpet’, the insiders told Executive – but always within limits.
Hiring a yacht, bringing in that ‘dance troupe’, going totally over the top with entertainment, the bankers all said they had heard of such things taking place but hadn’t ever seen them and certainly would not be organizing excesses for any client.
Individual operators might have practices that include going overboard with entertaining clients, but big banks would shun such vanities and emphasize ethics instead, said Chikhani, and Aouad confirmed that his bank entertains its clients but dancers and such “are not our way of doing business.”
It is not the entertainment that wealthy clients – who often can afford almost anything they want anyway – are after, “it is for them to be with people they can trust, people who give them attention and lots of our time within the limits of your profession,” said Zok.
So what about all those parties and wild nights of the wealthy? “Most probably, it’s just another urban myth,” ventured Ussher.
