JPMorgan Chase & Co., Deutsche Bank AG and Citigroup Inc. are hiring bankers who cater to wealthy clients as the more stringent capital standards reduces the profitability of investment banking.
JPMorgan, the largest U.S. bank by market value, plans to increase their personal wealth management in Europe, Middle East and Africa up to 20 percent per year until 2013. Frankfurt-based Deutsche Bank is strengthening its business in Asia after the purchase of Sal Oppenheim Group, the largest independent private bank in Germany, nine months ago, said spokesman Klaus Winkler.
Leaders of the Group of 20 plans approved last month at a meeting in Seoul to the capital requirements for banks twice to industry losses of over $ 1.3 trillion between 2007 and 2009. The change gives new impetus for banks to focus on units of capital-intensive, less risky and less as the supervision of the assets of wealthy clients, said Cedric Tille, Professor at the Graduate Institute in Geneva.
"It's a natural reaction of banks to go further into fee-based advisory activities, in response to capital requirements," said Tiller, a former economist at the Federal Reserve Bank of New York. "If you make a mistake, only customers who are upset."
Citigroup and Goldman Sachs Group Inc., both based in New York, are also building their divisions of wealth management what is known as Basel III sets out rules to curb risk-taking that led to a crisis in credit markets in 2008.
Wealth Management rebound
Citigroup, which received a taxpayer bailout 45 billion U.S. dollars in 2008 after losses in subprime mortgages and collateralized debt obligations, plans to double the wealth management advisors in North America about 260. Goldman Sachs CEO Lloyd Blankfein November 16, said "it is important to get bigger" in private wealth management.
"We have seen a massive upsurge in the number of banks wishing to participate as global wealth managers," said John Cryan, chief financial officer of UBS AG, Switzerland's largest bank, bankers in London on 30 September.
The new Basel proposals will reduce the profitability of operations as underwriting bond sales, lending to hedge funds and proprietary trading, said Professor Christoph Lechner Institute of Management, University of St. Gallen in Switzerland. The wealth of lower margin business management will help plug some of the void left by the investment bank said.
"Less risk"
"Private banking offers a more stable cash flow along the cycle and requires less capital," said Lechner. "But it's difficult because investment banking is very profitable when markets are working well, so that private banks can not be."
Additional capital requirements, return on capital companies - a measure of profitability - is reduced. investment banking unit of UBS reported a return on equity of 10.5 percent in the first nine months of the year, compared with 24 percent of the wealth management division.
Barclays Capital, the securities unit of Barclays Plc, who have lost money in the last decade under the rules of Basel III of capital forced banks to reserve more capital to cover risky units, analysts at UBS, said in a November 15 note clients. Barclays plans to reduce the ratio of earnings before taxes generated by its investment bank to 33 percent below two-thirds in the first half of this year.
Money "of other peoples'
While private banks capital to support lending to wealthy clients, client assets are considered low risk because they are "other people's money," said Bob FAWLER, managing partner of Boston Basis Point Group LLC, a consulting firm industry. "The risk is supposedly in charge of another person and the bank is acting as an agent."
Wealth management generates a stable income that supplements the less predictable rates obtained from investment banking, said Francois Reyle CEO Reyle & Cie, a Geneva-based bank with nearly 4 million Swiss francs ($ 4 million euros) under management.
"If you're going to create a single high-benefit and risk behaviors, then you need an engine of private banking and its recurring revenue viscosity," said Reyle.
While wealthy clients withdrew a net 251.6 billion francs in Zurich-based UBS in the 27 months to June, the unit pre-tax loss was only 166 million francs in the fourth quarter of 2008. Most of UBS more than $ 57 billion in writedowns and losses during the credit crisis - only surpassed by Royal Bank of Scotland Group Plc among European lenders - came from its investment bank.
'More competitive'
Market fragmentation of global wealth, which, according to London-based Scorpio Partnership has about 16.5 trillion U.S. dollars under management, means that there is room for specialized banks, said Benoit Dumont, president of the headquarters in Geneva, Switzerland JPMorgan unit. JPMorgan aims to double client assets in Switzerland during the next five years, focusing on wealthy families.
"The market is increasingly competitive, but no one dominates there is something for everyone," said Dumont, which is aimed at customers with at least $ 25 million to invest. "The good news for this business is that there is a new millionaire created every minute."
The number of households worldwide with at least $ 1 million in investable assets, excluding primary residences, increased to 10 million in 2009 from 8.6 million last year, according to a report published in June by Merrill Lynch and Capgemini.
DnB NOR ASA, Norway's largest bank, is seeking to expand its market share of wealthy clients in the world's second-richest country per capita, Karstensen said Paal, head of private equity markets in DNB.
Cultural differences
"We are increasing our focus on high net worth individuals in Norway, because we see is a group of customers is increasingly important for us," Karstensen said in a telephone interview from Oslo today. "There is great potential for growth."
While private banking is less capital intensive, are not "cultural" differences that make it difficult for large banks led by investment bankers to enter the market, said Jacques de Saussure, senior partner at Pictet & Cie , the largest wealth manager in Geneva.
"The key factors are the human qualities and the ability to invest for the long term," said De Saussure. "You can buy human relationships."
However, customers are more concerned than ever by relations of capital strength in holding that the bank, said Jean-Pierre Cuoni, Chairman of EFG International AG, which reached 87.5 billion francs on behalf of clients at the end of June.
"Suddenly it has become a problem," said Cuoni. "It's kind of a competitive advantage if it can be said today at least 19 percent, while the other has only 13 percent."
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