$1 trillion up in the air as wealthy reallocate assets
Smaller managers are benefiting from the wall of cash moving around the world
The wealthy are moving their money as never before. Last year more money shifted between wealth managers than at any other period in the history of private banking.
With the world’s biggest wealth manager UBS reporting an outflow of $100bn (€79.5bn), Financial News estimates – based on extensive conversations with analysts – is that with others included, about $1 trillion of the assets of the wealthy relocated to new homes in 2008.
Sebastian Dovey, head of consulting at Scorpio Partnership, says: “We would estimate 10% of assets has moved ‘between’ banks. We track the financials of more than 200 for the benchmark, and last year they managed more than $12.9 trillion.”
The biggest beneficiary of this shift – at least in terms of banks reporting new money flows – was Credit Suisse. In 2008 Switzerland’s second largest bank managed to vacuum up more than $38bn, as the bank benefited from the woes of its biggest competitor in Switzerland, UBS. However, last year’s inflow was down on the $45bn scooped up by Credit Suisse in 2007.
HSBC Private Bank, which has become more vocal in recent months about its ambition to be the number one private bank in the world, brought in $24bn of new money last year – the second highest amount among the wealth managers reporting data.
A handful of smaller wealth managers were also beneficiaries of last year’s turmoil, with EFG International gaining $16.5bn of new money, Julius Baer $15.4bn, and Bank Sarasin $13.1bn. Non-listed Pictet and one of the big winners in the wealth transfer bonanza of last year, reported money inflows of $13.2bn.
EFG and Bank Sarasin actually saw an acceleration in their net new money flows last year, despite it being one of the toughest years for wealth managers. EFG wins the prize for the biggest percentage increase in net new money, rising by 32% from 2007. Sarasin was closely behind, achieving a 31% rise in net new money flows last year.
Dovey says: “The smaller houses claim to be winning new funds. On paper they have a good argument. In reality, it’s not strictly true that clients are knocking the door down.”
Beyond UBS, which last year must rank as its annus horribilis for all parts of its business, the other laggards in the new money stakes were Geneva-based Union Bancaire Privée, which saw inflows of just $636m last year, compared with $13.8bn the year before.
Money might have been on the move last year, but Dovey believes this won’t be the case in 2009 – indeed, he is very pessimistic on fund flows.
“We have entered the ‘financial ice age’ in terms of fund flows.”
• Financial News looks at the winners and losers in last year’s great money grab in wealth, and looks at what the banks are doing to survive in what is bound to be a difficult year
Credit Suisse
Total wealth assets under management (gain/loss): $586bn (+$38bn of new money)
Credit Suisse was last year’s winner in the race for new money inflows, bringing in more than $38bn. Although the Zurich-based bank isn’t about to admit that it benefited from the demise of its great rival UBS, few doubt that Credit Suisse prospered on the back of UBS’ misfortunes.
This was particularly the case in Switzerland, where Credit Suisse’s reputation gained as widespread odium broke out among the country’s seven million citizens towards UBS as problems multiplied.
But a closer look at Credit Suisse’s new money flows could suggest future problems. In the last quarter of 2008 – hit by the wealthy paying off debt after the Lehman Brothers collapse – new money flows slowed to a trickle, to just $1.8bn.
HSBC Private Bank
$352bn (+$24bn)
HSBC Private Bank doesn’t have to work too hard to attract clients – with possibly the biggest retail banking network in the world, clients are mostly incubated from further down the food chain of the vast banking empire.
The London-based HSBC Private Bank had a pretty good year in 2008, taking in about $24bn of new money, compared with $36bn the year before. Inflows were particularly strong into its Swiss operations, which are mostly offshore accounts – proving that there is still plenty of air in the offshore balloon. Asia growth proved less strong for HSBC, where new money flows were hurt by the wealthy in the region offloading debt.
But with a recent rebranding, “the world’s private bank” looks well-placed to capitalise on the woes of its competitors.
EFG International
$70.1bn (+$16bn)
Arguably Europe’s fastest growing wealth manager EFG International managed to increase its inflows last year from the year before. More than $16bn flowed into the bank’s accounts in 2008, up from about $12bn in 2007.
The rise was on the back of a strong recruitment drive, which saw the Zurich-based wealth manager partly owned by the Latsis family – one of Greece’s wealthiest shipping dynasties – recruit up to 200 client advisers.
The bank’s managers want to continue to hire and have talked about a “transformation-type” acquisition. Supported by the Latsis fortune, EFG International might be one of the few wealth managers able to buy something that would be considered sizeable in private banking.
Julius Baer
$116bn (+$15bn)
Julius Baer managed to navigate the turmoil of last year without any major incident and was rewarded by most of its wealthy customers staying with the bank. It also attracted more than $15bn in new money last year, only slightly down on its 2007 inflow of just over $16bn.
Again, as with its competitors – EFG and Sarasin – Julius Baer saw inflows grow on the back of an aggressive hiring effort for its private banking unit.
Last December’s suicide of Alex Widmer, the head of the private banking business, was a huge blow to Julius Baer – his position is effectively being managed in a caretaker capacity by Hans de Gier.
Widmer’s death is unlikely to lead to outflows, but Julius Baer will be looking to appoint a permanent individual to be head of its private banking unit as soon as possible to shore up confidence.
Bank Sarasin
Sfr63.3bn (+$13bn)
The Basel-based bank that has made a virtue out of its close association with sustainability was one of the main winners in last year’s money transfer fest, attracting more than $13bn.
Even more impressive, Sarasin managed to attract more money in the second half of the year – when turmoil in the financial markets was most marked – than in the first half.
The aggressive hiring of relationship managers – the bank signed up 122 last year, one every three days – helped flows.
Unlike most of its competitors, Sarasin doesn’t include loans in its new money flows, unless these loans are reinvested with the bank. Sarasin says this makes its net new money flow data more robust than its competitors.
Pictet
$188bn, but doesn’t split out wealth numbers (+$13bn)
The smooth, purring machine that is Pictet lived up to its reputation last year, taking more than $13bn from other wealth managers. Pictet looks even more exclusive today as its unlimited liability partnership structure has considerable appeal among the carnage of the big universal bank structures.
Trust in the Pictet brand might be driving much of the inflow, but some savvy products around thematic investment themes have been popular for the bank as well.
Last year also saw the more than 200-year-old private bank consolidate its position in its home market – taking in more funds than any other bank or fund manager. As Pictet is not listed, it produces few details on its financial health, but there is a perception that the bank is well capitalised and managed.
SG Private Banking
$80.2bn (+$5.4bn)
SG Private Banking saw its new money flows virtually cut in half last year from the previous one to $5.4bn.
But the bank has signalled its intention to go after the very wealthy by acquiring a stake in US multi-family office Rockefeller & Co. SG Private Banking also expanded its regional presence in its home market, opening, or planning to open, offices in Marseille, Lyon, Lille, Strasbourg and Rennes.
The Paris-based wealth manager has talked of an acquisition in 2009, so, if this happens, money flows could take a useful upsurge.
Clariden Leu
$85bn (+$2.5bn)
Clariden Leu, a subsidiary of Credit Suisse, attracted $2.5bn of new money last year, down from the $4bn the year before.
The Zurich-based private bank has slipped under the radar during the past few years – but this might be to its advantage, given what has happened in the past 18 months. Nevertheless, the fall-off in the growth rate of new money is sharp enough to ask some questions of Clariden Leu as it enters the tough years ahead.
Vontobel
$25.5bn (+$2.5bn)
Vontobel had a good year in 2008 when it came to attracting money into its wealth operations. The Zurich-based private bank managed to avoid the worst of the headwinds affecting much of the financial services sector, despite having an investment banking business. Luckily, much of its corporate finance unit was limited to providing finance for small and medium-sized companies. Its hedge fund business also avoided exposure to Madoff, which helped its reputation.
Crédit Agricole
$102bn (+$1.8bn)
The French bank’s wealth management operations had a tough year, with new money flows slowing to just $1.8bn in 2008, compared with $6.8bn the year before. Crédit Agricole blames adverse market conditions on the slowdown.
With more than $100bn of assets under management, Crédit Agricole’s wealth business is one of the biggest in France, but it could find it losing its top spot to competitors such as SG Private Banking in the future, particularly as the latter expands its French network.
Union Bancaire Privée
$91bn, UBP does not strip out wealth assets (+$600m)
Last year wasn’t a vintage one for the Geneva-based private bank controlled by the de Picciotto family. Caught up in the Madoff affair, UBP has admitted to a $700m exposure to the New York investment company.
This helps to explain the mere trickle of new money to just over $600m last year, from more than $13bn the year before – and these figures include institutional flows because the bank doesn’t disclose its private banking asset gains.
UBP’s reputation will take a knock from its exposure to Madoff – with new money flows likely to be weak for at least the first half of 2009. Nevertheless, UBP has shown resilience in the past – it has been around under the same structure since the 1960s – and it will be keen to rebuild its reputation for entrepreneurship in wealth management.
UBS
$1.3 trillion (-$95.1bn)
For years UBS effortlessly sucked up the money of the wealthy, climaxing in a final binge of $137bn at the height of the credit bubble in 2007. But last year things started going wrong.
As problems multiplied for the investment banking unit of Switzerland’s largest bank in the early part of last year, wealthy clients began asking themselves questions about the reliability of the bank.
Things went from bad to worse in the second half of the year as the bank became embroiled in a dispute with the US authorities involving its offshore accounts. In the final quarter of last year, outflows accelerated to $49bn. UBS said when announcing its 2008 results last month that it managed to stem the outflow in January.
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