The region’s rich are staging a comeback. With the timeline for an economic rebound still unknown, personal fortunes may be the first to recover from the global financial meltdown. And as the rich get richer, the region’s banks are poised to catch as many big fish as they can.
“The global financial crisis hit the investment portfolios of the wealthy worldwide and banks, now more than ever, need a compelling wealth management offering,” said Gul Khan, HSBC’s global head of wealth management for the bank’s Islamic entity, Amanah.
HSBC and Standard Chartered, two of the region’s largest international banks, have announced efforts to expand their offerings in the premium banking market, catering to the wealthy and the super wealthy in new ways.
Tough at the top
The upper crust has seen losses the world over with the Forbes list of the world’s billionaires shrinking by 30 percent from 2008 to 2009.
Of the 752 who made it to the list for 2009, 87 percent saw losses last year. The total of the group’s wealth was nearly halved, dropping from $4.4 trillion to $2.4 trillion. Along with personal fortunes, assets in private wealth management decreased significantly from 2008 to 2009. According to wealth management advisory firm Scorpio Partnership Director Stephen Wall, the private banking industry worldwide is valued at $14.5 trillion, down 16.67 percent or $17.4 trillion from 2008.
“It’s a rather strange period in the sense that, although the overall impression is that the banking sector is shrinking and that there are less opportunities, there are still a number of opportunities arising in private banking,” said Panos Manolopoulos, vice president for the Europe, Middle East and Africa region at Stanton Chase International, an expert in the field of executive compensation.
But now that the crisis seems to have bottomed out, banks are expanding their services in premium and private banking for clients with more than $100,000 in capital and upwards of $1 million, respectively.
HSBC has opened a premier Islamic program in Malaysia, Saudi Arabia, the United Arab Emirates, Indonesia, Qatar and Bahrain, to serve affluent clients who wish to use Sharia compliant banking services. The bank heralds the program as the first of its kind in the world. Though capital requirements vary in some countries, most of the bank’s premier programs require $100,000 in assets and investments to qualify.
HSBC Lebanon Chief Executive Officer Francois Pascal de-Maricourt told Executive in December that the premier market would be a focus of 2010.
Standard Chartered Bank is also targeting affluent clients. The bank announced in November that it will be opening private banking offices, catering mainly to millionaires, in Qatar, Bahrain and Lebanon. For premium customers not eligible for private banking, Standard Chartered will be adding 850 financial advisors to its global “Priority Banking” program by the end of 2010.
What does $100,000 get you? The programs include free transfers to accounts at any branch of the bank, anywhere in the world. Most other fees are waived as well, including ATM charges. The programs also include a high-limit credit card (at HSBC the limit is $20,000.) Customer service benefits include dedicated call centers, meeting rooms and lounges at bank branches around the world, as well as emergency services such as cash advances.
Of course, both premium and private banking also include dedicated financial advisors to help clients grow their fortunes.
And with private banking — usually requiring $1 million in capital — the benefits and service increase with special dedicated wealth managers and offshore accounts with a promise of privacy. These services may include special loans for when a client needs cash but doesn’t want to pull out investments, and dedicated trading programs for those who want to take control of their own portfolios.
Back on track
Drops in investment returns, executive salaries and bonuses have affected smaller portfolios likely to be in the market for the $100,000 asset cut-off of most premium banking programs. But thanks to a stronger leaning toward prudence, executives in the Middle East have taken a softer hit than elsewhere in the world.
While ubiquitous in the West, the outrageous bonuses often three or four times higher than the executives’ annual salary were not conventional in the Middle East.
Stanton Chase’s Manolopoulos said he expected executive compensation to be restored to its pre-meltdown levels in the near future.
“There have been some pressures and some bonuses were given up, it’s true,” he said. “But there hasn’t been so much impact in that field.”
“By the end of 2010 we will be back to the original numbers of previous years.”
A run on the banks
Scorpio Partnership and Standard Chartered Private Bank released in September 2009, “The Future Wealth Report,” a survey, conducted in May and June of 2009, of 1,414 individuals with average net worth of $2 million each. The global survey called them “the future rich,” all of whom would be considered premium banking clients, and many would qualify for private banking services.
The survey noted that half the respondents had goals of quadrupling their fortunes within the next 10 years, one quarter of those in the next five.
According to the survey, “34 percent admitted that they have lost money in the crisis, but the vast majority believed that 2009 will not be a write off and 2010 might even be a good year.”
Though the respondents in the Middle East and North Africa were more willing than their European counterparts to hand the reins of their cash over to a financial advisor — with 34 percent saying that they would use a financial planner in the future, compared to 10 percent in Eastern Europe and 17 percent in Continental Europe — large banks are still fighting the bad reputation built by the financial crisis.
“The common conception in parts of the world where confidence in the financial advisory profession is low, is that the financial industries lack professional standards and are dogged by sharp practice and short term goals,” said the report.
This sentiment is precisely what the financial services industry will be fighting in the coming year.
This distrust of financial planners does not, however, equate to an aversion to risk; 60 percent of the respondents reported being “intrigued” by investments with a high level of risk and a corresponding high level of return. HSBC’s Maricourt said this was one of the key issues in financial advising for wealthy clients.
“Quite often we are trying to get a view of what kind of risk level the client wants to take because clearly the more risk you take, the higher the potential return,” he said.
Getting their groove back
In a time where liquidity is scarce and bad loans are a fact of life, tapping into the wealthy set is a good way for banks to efficiently grow deposits.
“Premier banking is usually intended for a bank to grow their liabilities and to grow their deposits,” said James Gebara, senior manager of personal finance services at HSBC Lebanon.
And after the banks have collected their high profile clients, they must shepherd their portfolios toward growth, a game that has changed in recent years.
“What we have seen is that clients are now trying to really have a better understanding of what they are investing in,” said Maricourt. “We saw, for instance, that for a period of time, our clients were less interested in equity because there was a lot of uncertainty in terms of stock markets and in terms of what would be the potential loss on equity markets.”
“More recently we have seen some people reentering the equity markets, but we try to select the markets that we think are more likely to grow with a lower level of risk.”
According to the Future Wealth Report, today’s premium banking client prefers to be hands-on with his money. For financial advisors and wealth managers, the watch word for the coming year is “diversify.”
“They are trying not to invest all of their eggs in the same basket and I think that nowadays the key is to achieve the right level of diversification,” said Maricourt.
With almost a third of the Future Wealth Report’s respondents under 29-years-old and just under half were between the ages of 30 and 44, the premier and private banking sectors look set for a busy time ahead.